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Sequential Methodology for Signaling Business Cycle Turning Points

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Author Info
Vasyl Golosnoy
Jens Hogrefe
Abstract

The dates of U.S. business cycle are reported by NBER with a considerable delay, so an early notion of turning points is of particular interest. This paper proposes a novel sequential approach designed for timely signaling these turning points. A directional cumulated sum decision rule is adapted for the purpose of on-line monitoring of transitions between subsequent phases of economic activity. The introduced procedure shows a sound detection ability for business cycle peaks and troughs compared to the established dynamic factor Markov switching methodology. It exhibits a range of theoretical optimality properties for early signaling, moreover, it is transparent and easy to implement

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File URL: http://www.ifw-members.ifw-kiel.de/publications/sequential-methodology-for-signaling-business-cycle-turning-points-1/sequential-methodology-for-signaling-business-cycle-turning-points
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Publisher Info
Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1528.

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Length: 26 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:kie:kieliw:1528

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Related research
Keywords: Business cycle; CUSUM control chart; Dynamic Factor Markov switching models; Early signaling; NBER dating;

Find related papers by JEL classification:
C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Statistical Decision Theory; Operations Research
C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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References listed on IDEAS
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. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Harding, Don & Pagan, Adrian, 2006. "Synchronization of cycles," Journal of Econometrics, Elsevier, vol. 132(1), pages 59-79, May. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Edward E. Leamer, 2008. "What's a Recession, Anyway?," NBER Working Papers 14221, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22. [Downloadable!] (restricted)
  6. 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, vol. 39(4), pages 969-96, November.
  7. Layton, Allan P., 1996. "Dating and predicting phase changes in the U.S. business cycle," International Journal of Forecasting, Elsevier, vol. 12(3), pages 417-428, September. [Downloadable!] (restricted)
  8. David Bock & Eva Andersson & Marianne Frisén, 2005. "Statistical surveillance of cyclical processes with application to turns in business cycles," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(7), pages 465-490. [Downloadable!]
  9. David N. DeJong & Roman Liesenfeld & Jean-François Richard, 2005. "A Nonlinear Forecasting Model of GDP Growth," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 697-708, December. [Downloadable!] (restricted)
  10. Chauvet, Marcelle & Piger, Jeremy, 2008. "A Comparison of the Real-Time Performance of Business Cycle Dating Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 42-49, January. [Downloadable!] (restricted)
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