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Identifying and Forecasting the Turns of the Japanese Business Cycle

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  • Konstantin A., Kholodilin

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

In this paper we identify and try to predict the turning points of the Japanese business cycle. As a measure of the business cycle we use a composite economic indicator (CEI). This indicator is endowed with nonlinear dynamics to capture the asymmetries between different cyclical phases. Two types of nonlinear dynamics are considered : Markov switching and smooth transition autoregression (STAR). The performance of these models in terms of forecasting the business cycle turns is compared. Both types of models produce statistically equivalent in-sample forecasting results, whilst the CEI with exponential STAR tends to outperform the CEI with Markov-switching and logistic STAR in the out-of-sample prediction.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2003008.

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Length: 30
Date of creation: 01 Jun 2003
Date of revision:
Handle: RePEc:ctl:louvir:2003008

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Keywords: composite economic indicator; Markov switching; smooth transition autoregression; turning points; reference cycle; forecasting;

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  1. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262112388, December.
  2. Konstantin A. Kholodilin, 2002. "Two Alternative Approaches to Modelling the Nonlinear Dynamics of the Composite Economic Indicator," Economics Bulletin, AccessEcon, vol. 3(26), pages 1-18.
  3. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  4. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
  5. repec:ebl:ecbull:v:3:y:2002:i:26:p:1-18 is not listed on IDEAS
  6. van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001.
  7. Álvaro Escribano & Oscar Jordá, 2001. "Testing nonlinearity: Decision rules for selecting between logistic and exponential STAR models," Spanish Economic Review, Springer, Springer, vol. 3(3), pages 193-209.
  8. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 62(3), pages 369-91, July.
  9. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-96, November.
  10. Layton, Allan P. & Katsuura, Masaki, 2001. "Comparison of regime switching, probit and logit models in dating and forecasting US business cycles," International Journal of Forecasting, Elsevier, Elsevier, vol. 17(3), pages 403-417.
  11. Sylvia Kaufmann, 2000. "Measuring business cycles with a dynamic Markov switching factor model: an assessment using Bayesian simulation methods," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 3(1), pages 39-65.
  12. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers, Harvard - J.F. Kennedy School of Government 178d, Harvard - J.F. Kennedy School of Government.
  13. Simon M. Potter, 1999. "Nonlinear time series modelling: an introduction," Staff Reports, Federal Reserve Bank of New York 87, Federal Reserve Bank of New York.
  14. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(2), pages 281-291, June.
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