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Predicting UK Business Cycle Regimes

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  • Chris Birchenhall

    (University of Manchester)

  • Marianne Sensier

    (University of Manchester)

Abstract

Following on from the work of Birchenhall, Jessen, Osborn & Simpson (JBES, 1999) on predicting US business cycle regimes we apply the same methodology to construct a one period ahead model of classical business cycle regimes in the UK. Birchenhall et al (1999) used regime data implied by the NBER dating of peaks and troughs. In the UK there is no comparable dating committee and our first task is to date the UK peaks and troughs. Application of a simple mechanical rule based on changes in GDP produces a set of acceptable turning points, with one exception that is attributable to the 3-day working week in 1974. Based on data from 1963 to 1999, we date three business cycle peaks at 1973 Q3, 1979 Q2 and 1990 Q2 together with troughs at 1975 Q3, 1981 Q1 and 1992 Q2. Starting with a number of real and financial leading indicators, several parsimonious one-quarter-ahead models are selected largely on the basis of the SIC criterion. A number of interesting results emerge from this investigation. A real M4 variable is consistently found to have predictive content. One model that performs well combines this with UK and German short-term interest rates. The role of the latter variable emphasises the open nature of the UK economy.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0953.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0953

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  1. Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 133-155, February.
  2. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, octubre-d.
  3. Birchenhall, Chris R & Osborn, Denise R & Sensier, Marianne, 2001. "Predicting UK Business Cycle Regimes," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 179-95, May.
  4. J. M. Binner & A. Fielding & A. W. Mullineux, 1999. "Divisia money in a composite leading indicator of inflation," Applied Economics, Taylor & Francis Journals, vol. 31(8), pages 1021-1031.
  5. James H. Stock & Mark W. Watson, 1992. "A Procedure for Predicting Recessions With Leading Indicators: Econometric Issues and Recent Experience," NBER Working Papers 4014, National Bureau of Economic Research, Inc.
  6. 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, octubre-d.
  7. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  8. Roma, Antonio & Torous, Walter, 1997. " The Cyclical Behavior of Interest Rates," Journal of Finance, American Finance Association, vol. 52(4), pages 1519-42, September.
  9. Simpson, Paul W & Osborn, Denise R & Sensier, Marianne, 2001. "Modelling Business Cycle Movements in the UK Economy," Economica, London School of Economics and Political Science, vol. 68(270), pages 243-67, May.
  10. Don Harding & Adrian Pagan, 1999. "Dissecting the Cycle," Melbourne Institute Working Paper Series wp1999n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  11. Birchenhall, Chris R, et al, 1999. "Predicting U.S. Business-Cycle Regimes," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 313-23, July.
  12. Andreou, Elena & Osborn, Denise R & Sensier, Marianne, 2000. "A Comparison of the Statistical Properties of Financial Variables in the USA, UK and Germany over the Business Cycle," Manchester School, University of Manchester, vol. 68(4), pages 396-418, Special I.
  13. Artis, Michael J & Kontolemis, Zenon G & Osborn, Denise R, 1997. "Business Cycles for G7 and European Countries," The Journal of Business, University of Chicago Press, vol. 70(2), pages 249-79, April.
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