<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This paper examines whether the five BRICS countries share similar business cycles and determines the probability of any of the countries moving from a contractionary regime to an expansionary regime. The study further examines the extent to which changes in monetary policy affect industrial output in expansions relative to contractions. Employing the <xref ref-type="bibr" rid="j_foli-2017-0017_ref_042_w2aab3b7b2b1b6b1ab1ac42Aa">Peersman and Smets (2001)</xref> Markov-Switching Model (MSM) and monthly data from 1994.01–2013.12, the study reveals that the five BRICS countries have similar business cycles. The results further demonstrate that the BRICS countries’ business cycles are characterized by two distinct growth rate phases: a contractionary regime and an expansionary regime. It can also be observed that the area-wide monetary policy has significantly large effects on industrial output in recessions as well as in booms. It has also been established that there is a high probability of moving from state one (recession) to state two (expansion) and that on average, the probabilities of staying in state 2 (expansion) are high for each of the five countries. It is, therefore, recommended that the BRICS countries should sustain uniform policy consistency (monetary policy), especially as they formulate and implement economic policies to stimulate industrial output.</p></abstract>

This paper examines whether the five BRICS countries share similar business cycles and determines the probability of any of the countries moving from a contractionary regime to an expansionary regime. The study further examines the extent to which changes in monetary policy affect industrial output in expansions relative to contractions. Employing the Peersman and Smets (2001) Markov-Switching Model (MSM) and monthly data from 1994.01–2013.12, the study reveals that the five BRICS countries have similar business cycles. The results further demonstrate that the BRICS countries’ business cycles are characterized by two distinct growth rate phases: a contractionary regime and an expansionary regime. It can also be observed that the area-wide monetary policy has significantly large effects on industrial output in recessions as well as in booms. It has also been established that there is a high probability of moving from state one (recession) to state two (expansion) and that on average, the probabilities of staying in state 2 (expansion) are high for each of the five countries. It is, therefore, recommended that the BRICS countries should sustain uniform policy consistency (monetary policy), especially as they formulate and implement economic policies to stimulate industrial output.

Monetary Policy and Industrial Output in the BRICS Countries: A Markov-Switching Model

School of Accounting, Economics & Finance

Folia Oeconomica Stetinensia

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

This paper examines whether the five BRICS countries share similar business cycles and determines the probability of any of the countries moving from a...

Monetary Policy and Industrial Output in the BRICS Countries: A Markov-Switching Model

Data publikacji: 27 gru 2017

Zakres stron: 35 - 55

Otrzymano: 16 maj 2017

Przyjęty: 08 paź 2017

DOI: https://doi.org/10.1515/foli-2017-0017

Słowa kluczowe
monetary policy, industrial output, BRICS countries, Markov-Switching Model

© 2017 Adebayo Augustine Kutu et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Monetary Policy and Industrial Output in the BRICS Countries: A Markov-Switching Model

Data publikacji: 27 gru 2017

Zakres stron: 35 - 55

Otrzymano: 16 maj 2017

Przyjęty: 08 paź 2017

DOI: https://doi.org/10.1515/foli-2017-0017

Słowa kluczowemonetary policy, industrial output, BRICS countries, Markov-Switching Model

© 2017 Adebayo Augustine Kutu et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Słowa kluczowe
monetary policy, industrial output, BRICS countries, Markov-Switching Model