The Interest in business cycle asymmetry has been steadily increasing over the last fifteen years. Most research has focused on the different behaviour of macro-economic variables during expansions and contractions, which by now is well documented. Recent evidence suggests that such a two-phase characterization of the business cycle might be too restrictive. In particular, it might be worthwhile to decompose the recovery phase in a high-growth phase (immediately following the trough of a cycle) and a subsequent moderate-growth phase. In this paper, the issue of multiple regimes is addressed using Smooth Transition Autoregressive [STAR] models. A possible limitation of STAR models as they are currently used is that essentially they deal with only two regimes. We propose a generalization of the STAR model such that more than two regimes can be accommodated. It is demonstrated that the class of Multiple Regime STAR [MRSTAR] models can be obtained from the two-regime model in an elegant way. Then main properties of the MRSTAR model and several issues which might be relevant for empirical specification are discussed in detail. In particular, a lagrange Multiplier-type test is derived which can be used to determine the appropriate number of regimes. Application o f the new model class to US real GNP and US unemployment rate provides evidence in favour of the existence of multiple business cycle phases.
