Forecasting the German Cyclical Turning Points: Dynamic Bi-Factor Model with Markov Switching
AbstractThis paper proposes a dynamic bi-factor model with Markov switching which detects and predicts turning points of the German business cycle. It estimates simultaneously the composite leading indicator (CLI) and composite coincident indicator (CCI) together with corresponding probabilities of a recession. According to the bi-factor model, CLI leads CCI by about 3 months at both peaks and troughs. The model-derived recession probabilities of CCI an CLI capture the turning points of the ECRI's and OECD's reference cycles much better than the dynamic single-factor model with Markov switching.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 225 (2005)
Issue (Month): 6 (November)
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More information through EDIRC
Forecasting turning points; composite coincident indicator; composite leading indicator; dynamic bifactor model; Markov switching;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
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