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Predicting UK Business Cycle Regimes

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Author Info
C R Birchenhall
D R Osborn
M Sensier

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Abstract

This paper uses logistic regression to construct a one-quarter ahead prediction model for classical business cycle regimes in the UK. The binary dependent variable is obtained by applying simple mechanical rules to date turning points in quarterly real GDP data from 1963 to 1999. Using a range of real and financial leading indicators, several parsimonious one-quarter-ahead models are developed for the GDP regimes, with model selection based on the SIC criterion. A real M4 variable is consistently found to have predictive content. One model that performs well combines this with nominal UK and German short-term interest rates. The role of the latter emphasises the open nature of the UK economy.

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File URL: http://www.socialsciences.manchester.ac.uk/cgbcr/dpcgbcr/dpcgbcr2.pdf
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Publisher Info
Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 02.

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Length: 31 pages
Date of creation: 2000
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Handle: RePEc:man:cgbcrp:02

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Keywords: business cycle dating financial variables leading indicators logistic classification models regime prediction

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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.:
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  3. 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. [Downloadable!] (restricted)
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    Other versions:
  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. [Downloadable!] (restricted)
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  7. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
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  8. Cover, James Peery, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1261-82, November. [Downloadable!] (restricted)
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  14. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
  15. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
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  18. Roma, Antonio & Torous, Walter, 1997. " The Cyclical Behavior of Interest Rates," Journal of Finance, American Finance Association, vol. 52(4), pages 1519-42, September. [Downloadable!] (restricted)
  19. Chris R. Birchenhall & Marianne Sensier & Denise R. Osborn, 2000. "Predicting Uk Business Cycle Regimes," Computing in Economics and Finance 2000 134, Society for Computational Economics. [Downloadable!]
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  20. 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.
  21. Krolzig, Hans-Martin & Sensier, Marianne, 2000. "A Disaggregated Markov-Switching Model of the Business Cycle in UK Manufacturing," Manchester School, University of Manchester, vol. 68(4), pages 442-60, Special I. [Downloadable!] (restricted)
  22. Artis, Michael J & Kontolemis, Zenon G & Osborn, Denise R, 1997. "Business Cycles for G7 and European Countries," Journal of Business, University of Chicago Press, vol. 70(2), pages 249-79, April. [Downloadable!] (restricted)
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Full references

Cited by:
(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!]
    Other versions:
  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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