Interconnections between Eurozone and US booms and busts using a Bayesian Panel Markov-Switching VAR model

The proposed Panel Markov-Switching VAR model accommodates changes in low and high data frequencies and incorporates endogenous time-varying transition matrices of country-specific Markov chains, allowing for interconnections. An efficient multimove sampling algorithm draws time-varying Markov-switching chains. Using industrial production growth and credit spread data, several important data features are obtained. Three regimes appear with slow growth becoming persistent in Eurozone. Turning point analysis indicates the US leading the Eurozone cycle. Amplification effects influence recession probabilities for Eurozone countries. A credit shock results in temporary negative industrial production growth in Germany, Spain and US. Core and peripheral countries exist in Eurozone