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Forecasting recessions in real time

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Abstract

We review several methods to define and forecast classical business cycle turning points in Norway. In the paper we compare the Bry - Boschan rule (BB) with a Markov Switching model (MS), using alternative vintages of Norwegian Gross Domestic Product (GDP) as the business cycle indicator. The timing of business cycles depends on the vintage and the method used. BB provides the most reasonable definition of business cycles. The forecasting exercise, where the models are augmented with surveys or financial indicators, respectively, leads to the conclusion that the BB rule applied to density forecasts of GDP augmented with either the consumer confidence index or a financial conditions index provides the most timely predictions of peaks. For troughs, augmenting with surveys or financial indicators does not increase forecastability.

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2014/02.

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Length: 29 pages
Date of creation: 13 Feb 2014
Date of revision:
Handle: RePEc:bno:worpap:2014_02

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Keywords: Forecast densities; Turning points; Real-time data;

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