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Do Leading Indicators Help to Predict Business Cycle Turning Points in Germany?

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  • Ulrich Fritsche
  • Vladimir Kuzin

Abstract

Using a binary reference series based on the dating procedure of Artis, Kontolemis and Osborn (1997) different procedures for predicting turning points of the German business cycles were tested. Specifically, a probit model as proposed by Estrella and Mishkin (1997) as well as Markov-switching models were taken into consideration. The overall results indicate that the interest rate spread, the longterm interest rate as well as some monetary indicators and some survey indicators can help predicting turning points of the business cycle.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38604.de/dp314.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 314.

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Length: 22 p.
Date of creation: 2002
Date of revision:
Handle: RePEc:diw:diwwpp:dp314

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Keywords: Business cycle; leading indicators; probit model; McFadden's R2; Markov switching models;

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References

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  1. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  2. Henri Bernard & Stefan Gerlach, 1996. "Does the term structure predict recessions? The international evidence," BIS Working Papers 37, Bank for International Settlements.
  3. 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.
  4. Arturo Estrella, 1997. "A new measure of fit for equations with dichotomous dependent variables," Research Paper 9716, Federal Reserve Bank of New York.
  5. Ulrich Fritsche & Sabine Stephan, 2002. "Leading Indicators of German Business Cycles - An Assessment of Properties," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 222(3), pages 289-315.
  6. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
  7. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July.
  8. 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.
  9. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
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Cited by:
  1. Claus Brand & Hans-Eggert Reimers & Franz Seitz, 2003. "Narrow Money and the Business Cycle: Theoretical aspects and euro area evdence," Macroeconomics 0303012, EconWPA.

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