Testing Non-Linearity in Business Cycles

Compared to studies that use linear models there are, relatively speaking, few attempts to test non-linear business cycle models. The existing work can be grouped under three broad categories. First, there is the class of structural models that have several non-linear properties, but end up generating (simulated) cycles with linear characteristics. [e.g. Hickman (1972)]. Second, there is some work on the estimation of non-linear time series models which characterize non-linear aspects of cyclical phenomena better. [e.g. Marraval (1983)]. Finally, a small number of papers have attempted to investigate non-linear cyclical behavior using non-regression based techniques. [e.g. Neftci (1984), DeLong and Summers (1984)]. This paper is a review of these approaches.