Latent Leading and Coincident Factors Model with Markov-Switching Dynamics
AbstractThis paper introduces a two-factor model of leading and coincident economic indicators. The common leading factor is assumed to Granger-cause the common coincident factor. This property is used to estimate the two common factors simultaneously and hence more efficiently. Two models of the latent leading and coincident factors are studied: a model with linear dynamics and a model with Markov-switching dynamics introduced through the leading factor intercept term. The first model encompasses the comovements between the individual time series. The second model, moreover, takes care of possible asymmetries between the business cycle regimes.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 3 (2001)
Issue (Month): 7 ()
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Find related papers by JEL classification:
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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- repec:ebl:ecbull:v:3:y:2002:i:5:p:1-15 is not listed on IDEAS
- Konstantin A. Kholodilin, 2005. "Forecasting the Turns of German Business Cycle: Dynamic Bi-factor Model with Markov Switching," Discussion Papers of DIW Berlin 494, DIW Berlin, German Institute for Economic Research.
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