Identifying and Forecasting the Turning Points of the Belgian Business Cycle with Regime-Switching and Logit Models
AbstractThis paper seeks to elaborate econometric models that can be used to forecast the turning points of the Belgian business cycle. We begin by suggesting three reference cycle, which we hope will fill the void of an official reference chronology for Belgium. We then construct two different types of model to estimate the probabilities of recession : Markov-switching models, and Logit models. We apply each approach to a limited set of data, which are a good representation of the economy, are available early and are subject to only minor revisions. We then select the best performing model for each chronology and type of approach. The out-of-sample results show that the models provide useful indicators of business cycle turning points. They are however far from perfect forecasting tools, especially when it comes to forecasting periods of classical recession.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005006.
Date of creation: 01 Mar 2005
Date of revision:
Refrence chronologies; Markov-Switching and Logit models; forecasting business cycle turning points;
Find related papers by JEL classification:
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-29 (All new papers)
- NEP-BEC-2005-05-29 (Business Economics)
- NEP-DCM-2005-05-29 (Discrete Choice Models)
- NEP-ECM-2005-05-29 (Econometrics)
- NEP-ETS-2005-05-29 (Econometric Time Series)
- NEP-MAC-2005-05-29 (Macroeconomics)
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