Higher moments of MSVARs and the business cycle

I derive the first four moments of the Markov-switching VAR and use the results to reconsider\ud the con\ud ict between the Great Moderation and Financial Crisis literatures. In contrast to the\ud linear model, a three-regime Markov-switching model captures the skewness and kurtosis of US\ud GDP growth 1954-2011. However, a specification with four regimes splits the sample in 1984, a\ud result familiar from the Great Moderation literature. The higher moments of the MSVAR, not\ud previously studied in the literature, reveal the Great Moderation to be a trade off between variance\ud and kurtosis. U.S. GDP growth shifts from an almost Gaussian structure 1954-84 into a pattern\ud with low variance, negative skewness and high kurtosis. The Markov-switching model which splits\ud the sample accurately captures the new moment structure