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Alternative Methodology for Turning-Point Detection in Business Cycle: A Wavelet Approach

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Abstract

We provide a signal modality analysis to characterize and detect nonlinearity schemes in the US Industrial Production Index time series. The analysis is achieved by using the recently proposed "delay vector variance" (DVV) method, which examines local predictability of a signal in the phase space to detect the presence of determinism and nonlinearity in a time series. Optimal embedding parameters used in the DVV analysis are obtained via a differential entropy based method using wavelet-based surrogates. A complex Morlet wavelet is employed to detect and characterize the US business cycle. A comprehensive analysis of the feasibility of this approach is provided. Our results coincide with the business cycles peaks and troughs dates published by the National Bureau of Economic Research (NBER).

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2012/12023.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 12023.

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Length: 20 pages
Date of creation: Apr 2012
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Handle: RePEc:mse:cesdoc:12023

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Keywords: Nonlinearity analysis; surrogates; Delay Vector Variance (DVV) method; wavelets; business cycle; embedding parameters.;

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  1. Gallegati Marco & Gallegati Mauro, 2007. "Wavelet Variance Analysis of Output in G-7 Countries," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(3), pages 1-25, September.
  2. Gallegati, Marco, 2008. "Wavelet analysis of stock returns and aggregate economic activity," Computational Statistics & Data Analysis, Elsevier, vol. 52(6), pages 3061-3074, February.
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Cited by:
  1. Peter Martey Addo & Monica Billio & Dominique Guegan, 2013. "Nonlinear Dynamics and Recurrence Plots for Detecting Financial Crisis," Documents de travail du Centre d'Economie de la Sorbonne 13024, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Peter Martey Addo & Monica Billio & Dominique Guegan, 2013. "Turning point chronology for the Euro-Zone: A Distance Plot Approach," Documents de travail du Centre d'Economie de la Sorbonne 13025, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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