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Evaluating the Classification of Economic Activity into Recessions and Expansions

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  • Travis J. Berge
  • Òscar Jordà

Abstract

The Business Cycle Dating Committee of the National Bureau of Economic Research provides a historical chronology of business cycle turning points. We investigate three central aspects of this chronology. How skillful is the Dating Committee when classifying economic activity into expansions and recessions? Which indices of economic conditions best capture the current but unobservable state of the business cycle? And which indicators best predict future turning points, and at what horizons? We answer each of these questions in detail using methods specifically designed to assess classification ability. In the process, we clarify several important features of the business cycle. (JEL C82, E32)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 2 (April)
Pages: 246-77

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:2:p:246-77

Note: DOI: 10.1257/mac.3.2.246
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References

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  1. Glenn D. Rudebusch & John C. Williams, 2007. "Forecasting recessions: the puzzle of the enduring power of the yield curve," Working Paper Series 2007-16, Federal Reserve Bank of San Francisco.
  2. Jordà, Òscar & Taylor, Alan M., 2012. "The carry trade and fundamentals: Nothing to fear but FEER itself," Journal of International Economics, Elsevier, vol. 88(1), pages 74-90.
  3. Zheng Liu & Daniel F. Waggoner & Tao Zha, 2010. "Sources of Macroeconomic Fluctuations: A Regime-switching DSGE Approach," Emory Economics 1002, Department of Economics, Emory University (Atlanta).
  4. Oskar Morgenstern, 1959. "International Financial Transactions and Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number morg59-1.
  5. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
  6. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  7. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Wesley Clair Mitchell, 1927. "Business Cycles: The Problem and Its Setting," NBER Books, National Bureau of Economic Research, Inc, number mitc27-1.
  9. Khandani, Amir E. & Kim, Adlar J. & Lo, Andrew W., 2010. "Consumer credit-risk models via machine-learning algorithms," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2767-2787, November.
  10. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
  11. Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages -15 National Bureau of Economic Research, Inc.
  12. Wesley Clair Mitchell, 1927. "Introductory pages to "Business Cycles: The Problem and Its Setting"," NBER Chapters, in: Business Cycles: The Problem and Its Setting, pages -23 National Bureau of Economic Research, Inc.
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Cited by:
  1. John C Bluedorn & Jörg Decressin & Marco Terrones, 2013. "Do Asset Price Drops Foreshadow Recessions?," IMF Working Papers 13/203, International Monetary Fund.
  2. Travis Berge & Òscar Jordà, 2013. "A chronology of turning points in economic activity: Spain, 1850–2011," SERIEs, Spanish Economic Association, vol. 4(1), pages 1-34, March.
  3. Lahiri, Kajal & Wang, J. George, 2013. "Evaluating probability forecasts for GDP declines using alternative methodologies," International Journal of Forecasting, Elsevier, vol. 29(1), pages 175-190.
  4. Mathias Drehmann & Kostas Tsatsaronis, 2014. "The credit-to-GDP gap and countercyclical capital buffers: questions and answers," BIS Quarterly Review, Bank for International Settlements, March.
  5. Mathias Drehmann, 2013. "Evaluating early warning indicators of banking crises: Satisfying policy requirements," BIS Working Papers 421, Bank for International Settlements.
  6. Turgut Kisinbay & Chikako Baba, 2011. "Predicting Recessions: A New Approach For Identifying Leading Indicators and Forecast Combinations," IMF Working Papers 11/235, International Monetary Fund.
  7. Zhongbo Jing & Jakob de Haan & Jan Jacobs & Haizhen Yang, 2013. "Identifying Banking Crises Using Money Market Pressure: New Evidence For a Large Set of Countries," DNB Working Papers 397, Netherlands Central Bank, Research Department.

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