Identificaction of the ecuadorian economy states in dollarization: A multivariate approach through MS-DFM in two steps

Abstract

The official institution entrusted to present and publish the economic situation of the country according to the national accounts is the Central Bank. The indicators are generally published by a delay of at least 3 months. Nowadays the above mentioned organism uses the methodology proposed by the OECD for the estimation of the economic cycle where the GDP is used as the main input and from the filter Hodrick Prescott in two phases, there are estimated the economic cycle and the periods of recession. This paper presents an estimation of the economy states through the two-step methodology: extraction of a common factor through dynamic factor models using the Kalman filter and estimation of the regime transition probabilities from a Markov Switching model in mean, using 70 macroeconomic indicators with monthly frequency. The results suggest that the economy went through three clearly marked states in the last 17 years, that the expansion regime is more persistent than the recession, and that the first months of 2017 the economy finally emerged from the recession consistent with the rates of year-on-year growth of the first three quarters of the mentioned year. Finally, the results indicate that the group of variables that experience the greatest factorial load are those of the financial sector and the external sector