In this paper, we relax the assumption of constant regime-specific mean growth rates in Hamilton's (1989) two-state Markov-switching model of the business cycle. We introduce a random walk hierarchical prior for each regime-specific mean growth rate and impose a cointegrating relationship...

We demonstrate how Bayesian shrinkage can address problems with utilizing large information sets to calculate trend and cycle via a multivariate Beveridge-Nelson (BN) decomposition. We illustrate our approach by estimating the U.S. output gap with large Bayesian vector autoregressions that...

We investigate the persistence of real exchange rates using Bayesian methods. First, an algorithm for Bayesian estimation of nonlinear threshold models is developed. Unlike standard grid-based estimation, the Bayesian approach fully captures joint parameter uncertainty and uncertainty about...