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Do Leading Indicators Really Predict Australian Business Cycle Turning Points?

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  • ALLAN P. LAYTON

Abstract

In earlier work, Layton (1994) demonstrated how Hamilton's (1991) quasi‐bayesian, markov (constant transition probability parameters), regime‐switching model could be used to characterize the nature of the Australian business cvcle. However, Diebold, Lee and Weinbach (1992), Durland and McCurdy (1994), and Filardo(1994) have suggested approaches which allow the markov transition probabilities to he non‐constant. In this paper the Australian coincident index is employed as a summative measure of the business cycle and the transition probability parameters are allowed to vary. In particular, leading and long leading indexes are used as putative determinants of these transition probabilities to test whether, in this framework, these indexes systematically influence the probability of phase changes in the business cycle.

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  • Allan P. Layton, 1997. "Do Leading Indicators Really Predict Australian Business Cycle Turning Points?," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 258-269, September.
    • Handle: RePEc:bla:ecorec:v:73:y:1997:i:222:p:258-269
    DOI: 10.1111/j.1475-4932.1997.tb00999.x
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    1. Albert, James H & Chib, Siddhartha, 1993. "Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 1-15, January.
    2. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-391, July.
    3. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
    4. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    5. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
    6. Durland, J Michael & McCurdy, Thomas H, 1994. "Duration-Dependent Transitions in a Markov Model of U.S. GNP Growth," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 279-288, July.
    7. Filardo, Andrew J. & Gordon, Stephen F., 1998. "Business cycle durations," Journal of Econometrics, Elsevier, vol. 85(1), pages 99-123, July.
    8. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    9. Hamilton, James D, 1991. "A Quasi-Bayesian Approach to Estimating Parameters for Mixtures of Normal Distributions," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 27-39, January.
    10. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, March.
    11. Layton, Allan P., 1996. "Dating and predicting phase changes in the U.S. business cycle," International Journal of Forecasting, Elsevier, vol. 12(3), pages 417-428, September.
    12. Allan Layton, 1997. "A new approach to dating and predicting Australian business cycle phase changes," Applied Economics, Taylor & Francis Journals, vol. 29(7), pages 861-868.
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    Cited by:

    1. Philip M. Bodman, 1998. "Asymmetry and Duration Dependence in Australian GDP and Unemployment," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 399-411, December.
    2. Sergey Smirnov, 2011. "Those Unpredictable Recessions," HSE Working papers WP BRP 02/EC/2011, National Research University Higher School of Economics.
    3. Philip Gray, 2008. "Economic significance of predictability in Australian equities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(5), pages 783-805, December.
    4. Allan Layton & Daniel Smith, 2000. "A further note on the three phases of the US business cycle," Applied Economics, Taylor & Francis Journals, vol. 32(9), pages 1133-1143.
    5. Andrea Brischetto & Graham Voss, 2000. "Forecasting Australian Economic Activity Using Leading Indicators," RBA Research Discussion Papers rdp2000-02, Reserve Bank of Australia.
    6. Jamie Alcock & Philip Gray, 2005. "Forecasting Stock Returns Using Model‐Selection Criteria," The Economic Record, The Economic Society of Australia, vol. 81(253), pages 135-151, June.
    7. Dr Alicia Rambaldi & Bortolussi, 2004. "Interactions of Source State and Market Price Trends for Cattle of Korean, Japanese and USA Market Specifications," Discussion Papers Series 334, School of Economics, University of Queensland, Australia.

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