Pan-Pacific Conference XXXIV. Designing New Business Models in Developing Economies

variance period by the next decade.
The USA economy was going through high
variance period during 1960s, 1970s and 2005
onwards the volatility in the growth rate is still high.
The main reasons that contributed towards high
variance were the monetary recession occurred
when FED started to increase the interest rates, due
to fiscal tightening as well as contracting monetary
policies. Then, 2005
onwards USA growth rate was again in high
variance region due to the global recession that
severely impacted the US and other major
economies. Japan also went to a high variance
period, mainly during 1960s, mid 1970s and 2010;
and entered into recessionary period due to the oil
price shocks, financial liberalization phase and
model estimates as well as in the switching model.
A state-dependent process has been modeled to
monitor the volatility in the output growth levels,
therefore using a two state Markov switching model
is used to capture the shifts. The variance plots of
switching regimes largely coincided with
conditional variance plots of the GARCH models.
REFERENCES
[1] Bhar, Ramaprasad, and Shigeyuki Hamori.
“Alternative characterization of the
volatility in the growth rate of real GDP.”
Japan and the World Economy 15, no. 2
(2003): 223–231.Bollerslev, Tim.
[2] Ray Y. Chou, and Kenneth F Kroner.
“ARCH modeling in finance: A review of
the theory and empirical evidence.”
Journal of econometrics 52, nos. 1-2
(1992): 5–59.Franses, and Norman R
Swanson.
Japanese asset price bubble. During 1980s the
Japanese economy was not able to connect with
financial liberalization of international equity
markets,
then in early 1990s Japanese stock market bubbles
collapsed triggering the economy to depression. The
1991 to 2000 period is termed as the lost decade.
Furthermore, Japan and India were in low variance
period since 2007 while USA and Pakistan were
generally in high variance region for the same
period.
CONCLUSION
The research paper empirically identified the
structural break in the variance of growth rate of
GDP for the economies; USA, Pakistan, India and
Japan. The study investigated volatility in the GDP
process using GARCH model; then GARCH (1,1)
estimates enabled to plot the conditional variances,
and performed residual diagnostic tests. The
standardized residuals were not normally distributed
that led to assessment of structural break through
Markov switching variance model. Further, the
ARCH effects were mostly absent in the GARCH
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