Sequential Methodology for Signaling Business Cycle Turning Points
AbstractThe 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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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1528.
Length: 26 pages
Date of creation: Jun 2009
Date of revision:
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 - - - Operations Research; Statistical Decision Theory
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-BEC-2009-07-28 (Business Economics)
- NEP-ECM-2009-07-28 (Econometrics)
- NEP-ORE-2009-07-28 (Operations Research)
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