Turning point detection with Bayesian panel Markov-switching VAR : 2016 edition

This paper proposes a panel Markov-Switching (MS-) VAR model suitable for a multi-country analysis of the business cycle. We study the business cycles fluctuations of a group of countries, analyse the transmission of shocks across cycles and predict the turning points of the country-specific cycles. We focus on the European Union (EU) and compare the results obtained by analysing the EU at a disaggregated level. We propose a forecast combination approach for aggregating the turning points of the EU countries in order to obtain a possibly better prediction of the turning points for the EU business cycle. A Bayesian approach has been applied to estimate the panel MS-VAR model and to forecast the turning points.