Before revision:  Our findings suggest that lagged cointegration errors have predictive power for regime shifts and these movements between business cycle stages are mostly driven by differences in error variances .
After revision:  The results suggest that the regime allocation is governed by a subset of short-run adjustment coefficients and regime-specific variance-covariance matrices. These findings are complemented by an out-of-sample forecast exercise, illustrating the advantages of the model for predicting Euro area inflation in real time .