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Enhanced reliability of the leading indicator in identifying turning points in Taiwan? an evaluation

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Author Info
Shyh-Wei Chen () (Department of Economics, Tunghai University)
Abstract

Using Taiwan data, we employ Dueker's (1997, 2002) Probit-Markov switching model toevaluate the performance of Taiwan's leading indicator in identifying turning points.The merit of the Probit-MS model is that it incorporates the dependent structure of the leading indicator which is not taken consideration in the traditional Probit model.It is unambiguous that the best forecast horizon for Taiwan's leading indicatorin predicting business conditions is three months.The performance of Taiwan's leading index in identifying turning points based on the Probit-MS model is greatly enhanced when compared with that based on the Probit model,and beyond this, the model-identified business cycle dates are highly consistent with the officially identified turning points.

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File URL: http://economicsbulletin.vanderbilt.edu/2006/volume5/EB-05E30002A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 5 (2006)
Issue (Month): 10 ()
Pages: 1-17
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Handle: RePEc:ebl:ecbull:v:5:y:2006:i:10:p:1-17

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Related research
Keywords: business cycle; leading indicator; Probit-Markov switching model;

Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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  1. James H. Stock & Mark W. Watson, 1992. "A Procedure for Predicting Recessions With Leading Indicators: Econometric Issues and Recent Experience," NBER Working Papers 4014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S61-82, Suppl. De. [Downloadable!] (restricted)
  3. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January. [Downloadable!] (restricted)
    Other versions:
  4. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February. [Downloadable!] (restricted)
    Other versions:
  5. 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 357-84, March. [Downloadable!] (restricted)
  6. Andrew Ang & Geert Bekaert, 1998. "Regime Switches in Interest Rates," NBER Working Papers 6508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Michael Dueker, 1997. "Strengthening the case for the yield curve as a predictor of U.S. recessions," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 41-51. [Downloadable!]
  8. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-96, November.
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  10. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," Journal of Business, University of Chicago Press, vol. 62(3), pages 369-91, July. [Downloadable!] (restricted)
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  11. 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.
  12. Arturo Estrella & Frederic S. Mishkin, 1996. "Predicting U.S. recessions: financial variables as leading indicators," Research Paper 9609, Federal Reserve Bank of New York. [Downloadable!]
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  13. Maximo Camacho & Gabriel Perez-Quiros, 2002. "This is what the leading indicators lead," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-80. [Downloadable!]
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  14. Chris R. Birchenhall & Marianne Sensier & Denise R. Osborn, 2000. "Predicting Uk Business Cycle Regimes," Computing in Economics and Finance 2000 134, Society for Computational Economics. [Downloadable!]
    Other versions:
  15. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
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