Forecasting Business Cycles Using Deviations From Long-Run Economic Relationships
AbstractWe introduce a new index that explores the linkage between business-cycle fluctuations and deviations from long-run economic relationships. This index is virtually a measure of the distance between an attractor, a space spanned by the associated cointegrating vectors, and a point in the n-dimensional Euclidean space. The index is applied to U.S. quarterly data to demonstrate its association with an economy s vulnerability state. We find that the average of the index during expansions negatively correlates with the average contraction in output during recessions. A nonlinear error correction model based on a revised version of the index reveals a forecasting gain as compared to the linear error correction model.The authors gratefully acknowledge helpful comments from two anonymous referees, Ming-Li Chen, Ching-Fan Chung, Jin-Lung Lin, and participants of the 2001 winter meeting of the Econometric Society in New Orleans and the workshop at the Institute of Economics, Academia Sinica. Yau received financial support from the National Science Council of Taiwan under grant NSC 89-2415-H-030-011.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 7 (2003)
Issue (Month): 05 (November)
Contact details of provider:
Postal: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Fax: +44 (0)1223 325150
Web page: http://journals.cambridge.org/jid_MDYProvider-Email:firstname.lastname@example.org
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.