Volatility dynamics of the US business cycle: A multivariate asymmetric GARCH approach |
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Authors: | Kin-Yip Ho Albert K Tsui Zhaoyong Zhang |
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Affiliation: | 1. Faculty of Business and Enterprise, Swinburne University of Technology, John Street, Hawthorn VIC 3122, Australia;2. Department of Economics, National University of Singapore, 1 Arts Link, Singapore 117570, Singapore;3. School of Accounting, Finance & Economics, Edith Cowan University, 270 Joondalup Drive, Joondalup, Perth, WA 6027, Australia |
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Abstract: | Most empirical investigations of the business cycles in the United States have excluded the dimension of asymmetric conditional volatility. This paper analyses the volatility dynamics of the US business cycle by comparing the performance of various multivariate generalised autoregressive conditional heteroskedasticity (GARCH) models. In particular, we propose two bivariate GARCH models to examine the evidence of volatility asymmetry and time-varying correlations concurrently, and then apply the proposed models to five sectors of Industrial Production of the United States. Our findings provide strong evidence of asymmetric conditional volatility in all sectors, and some support of time-varying correlations in various sectoral pairs. This has important policy implications for government to consider the effective countercyclical measures during recessions. |
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Keywords: | E32 E37 |
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