Business cycles in east and southeast Asia.

The study of an economy's business cycle -defined as a deviation from the long-term output growth rate- is an important task: upward deviations may create inflationary pressures, while downward deviations may be associated with a high unemployment rate. There can be many reasons why an economy may grow at a different rate than the long-term trend. These include government policies, political factors and other internal or external shocks. While it is not possible to eradicate the business cycle -after all a shock is an unexpected development in a relevant variable- the understanding of its statistical properties is helpful in assessing the effects of the various shocks hitting the economy and designing policies to help reduce output variability. The purpose of this thesis is to model empirically business cycles of selected East and Southeast Asian economies. The region is of particular interest as it consists of both developed economies (e.g. Japan and Singapore) and emerging ones (e.g. South Korea and Thailand). In addition, the so-called Asian tigers experienced a fall from grace during the crisis of 1997-98 but they have recently resumed robust growth rates. Given the prominent role that these economies may play in a world emerging from the severe financial crisis of 2007 the investigation of their business cycles becomes an even more valuable endeavour. But how can we model the business cycle to answer pertinent questions? A regime-switching methodology is adopted to examine the following issues; first, the degree of persistence of positive and negative growth rate regimes; second, the extent of correlation of the region's economies conditional on the growth regime; third, the informational content of leading indicators; and fourth, the duration dependence of the business cycle. The selected methodology allows the extraction of the relevant information and pervades the conclusions of the thesis. Following a brief introduction, chapter 2 reviews the modern theory of business cycles, as well as the relevant empirical contributions. The next chapter examines in some depth the economic structure of the sample economies. Understanding the main characteristics of each economy is a prerequisite in appreciating the features of the respective business cycle. Chapter 4 presents the methodology of fixed and time-varying transition probability regime-switching models, which will be used in the Subsequent analysis. Chapters 5 and 6 provide the main answers to the research questions outlined above. A summary of the work is offered in the last chapter