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Predicting UK Business Cycle Regimes

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Author Info
Chris Birchenhall (University of Manchester)
Marianne Sensier (University of Manchester)

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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. S. Cook & C. Thomas, 2003. "An alternative approach to examining the ripple effect in UK house prices," Applied Economics Letters, Taylor and Francis Journals, vol. 10(13), pages 849-851, October. [Downloadable!] (restricted)
  2. Shyh-Wei Chen, 2006. "Enhanced reliability of the leading indicator in identifying turning points in Taiwan? an evaluation," Economics Bulletin, Economics Bulletin, vol. 5(10), pages 1-17. [Downloadable!]
  3. D R Osborn & M Sensier & D van Dijk, 2003. "Predicting Growth Cycle Regimes for European Countries," Centre for Growth and Business Cycle Research Discussion Paper Series 39, Economics, The Univeristy of Manchester. [Downloadable!]
  4. João Victor Issler & FARSHID VAHID, 2003. "The missing link: Using the NBER recession indicator to construct coincident and leading indices of economic activity," Economics Working Papers (Ensaios Economicos da EPGE) 492, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
    Other versions:
  5. René Garcia & Richard Luger, 2005. "The Canadian Macroeconomy and the Yield Curve: An Equilibrium-Based Approach," Working Papers 05-36, Bank of Canada. [Downloadable!]
  6. M Sensier & M Artis & C R Birchenhall & D R Osborn, 2002. "Domestic and International Influences on Business Cycle Regimes in Europe," Centre for Growth and Business Cycle Research Discussion Paper Series 11, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  7. Michael J. Dueker & Katrin Wesche, 2005. "Forecasting macro variables with a Qual VAR business cycle turning point index," Working Papers 2001-019, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. Maximo Camacho & Gabriel Perez-Quiros, 2002. "This is what the leading indicators lead," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-80. [Downloadable!]
    Other versions:
  9. Giuseppe Marotta & Chiara Pederzoli & Costanza Torricelli, 2005. "Forward-looking estimation of default probabilities with Italian data," Heterogeneity and monetary policy 0504, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
  10. Windrum,Paul & Birchenhall,Chris, 2002. "Technological diffusion, welfare and growth: technological succession in the presence of network externalities," Research Memoranda 038, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  11. C R Birchenhall & D R Osborn & M Sensier, 2000. "Predicting UK Business Cycle Regimes," Centre for Growth and Business Cycle Research Discussion Paper Series 02, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  12. D R Osborn & M Sensier, 2002. "The Prediction of Business Cycle Phases: Financial Variables and International Linkages," Centre for Growth and Business Cycle Research Discussion Paper Series 15, Economics, The Univeristy of Manchester. [Downloadable!]
  13. Ana Beatriz C. Galvao, 2006. "Structural break threshold VARs for predicting US recessions using the spread," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(4), pages 463-487. [Downloadable!]
  14. M Sensier & D R Osborn & N Öcal, 2002. "Asymmetric Interest Rate Effects for the UK Real Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 10, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  15. E. Andersson & D. Bock & M. Frisén, 2006. "Some statistical aspects of methods for detection of turning points in business cycles," Journal of Applied Statistics, Taylor and Francis Journals, vol. 33(3), pages 257-278, April. [Downloadable!] (restricted)
  16. E. Andersson, 2002. "Monitoring cyclical processes. A non-parametric approach," Journal of Applied Statistics, Taylor and Francis Journals, vol. 29(7), pages 973-990, September. [Downloadable!] (restricted)
  17. Clements, Michael P & Harvey, David I, 2006. "Forecast Encompassing Tests and Probability Forecasts," The Warwick Economics Research Paper Series (TWERPS) 774, University of Warwick, Department of Economics. [Downloadable!]
  18. Clements, Michael P & Galvão, Ana Beatriz, 2006. "Macroeconomic Forecasting with Mixed Frequency Data : Forecasting US output growth and inflation," The Warwick Economics Research Paper Series (TWERPS) 773, University of Warwick, Department of Economics. [Downloadable!]
  19. Windrum,Paul & Birchenhall,Chris, 2004. "Structural change in the presence of network externalities: a co-evolutionary model of technological successions," Research Memoranda 012, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
    Other versions:
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