Abstract

This paper is an advanced analysis of the cyclical industry in Tunisia by taking the transition probabilities as endogenous in a Markov switching framework. Using Matlab programming of the Gibbs algorithm, Bayesian analysis allowed us to deal with the hidden Markov process withvariable transition probabilities. Showing a persistent state, we obtained a positive relationship between previous and current regimes. These are presented as information leading to the variability of probabilities transition cycles. Furthermore, an anticipated increase in France would have a delayed effect on the business cycle in Tunisia because of domestic rigidities and institutional constraints as to depolarization. During recession in France, the persistence of expansion phases compared to recession seems to be verified in the Tunisian context. This type of application is not abundant in the empirical literature in Tunisia. Based on the various robustness tests (Vuong, 1989; Ang and Bekeart, 2002), the supremacy of MS-TVTP models over FTP in the treatment of cyclical fluctuations in Tunisia is shown.

Key words: Markov switching, MS-FTP, MS-TVP, Gibbs sampling, robustness test.