American Journal of Applied Sciences

A Markov Switching Regime Model of Malaysia Property Cycle

Abdul Mutalib Beksin, Bawa Chafe Abdullahi, Abdul M. Beksin and Bawa C Abdullahi

DOI : 10.3844/ajassp.2011.1209.1213

American Journal of Applied Sciences

Volume 8, Issue 11

Pages 1209-1213

Abstract

Problem statement: Non-linear models such as the Markov Switching regime (MS) method of modeling business cycles, in principle can be used to model property cycle. Approach: The MS model can distinguish property cycle in recession and expansion phases and is sufficiently flexible to allow different relationships to apply over these phases. The Malaysian property cycle was modeled using a MS model. Results: This technique could be used to simultaneously estimate the data generating process of real GDP growth and classify each observation into one of two regimes (i.e., low-growth and high-growth regimes). Conclusions: This finding has important policy implications, since the yield spread is used to generate the time-varying probabilities of the MS model as well as the recession probabilities of the logit model. A strong relationship exists between interest rates and the business cycle, where interest rates lead the business cycle.

Copyright

© 2011 Abdul Mutalib Beksin, Bawa Chafe Abdullahi, Abdul M. Beksin and Bawa C Abdullahi. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.