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Nonlinear Autoregresssive Leading Indicator Models of Output in G-7 Countries

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Author Info
Heather M. Anderson ()
George Athanasopoulos
Farshid Vahid ()

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Abstract

This paper studies linear and nonlinear autoregressive leading indicator models of business cycles in G7 countries. The models use the spread between short-term and long-term interest rates as leading indicators for GDP, and their success in capturing business cycles is gauged by non-parametric shape tests, and their ability to predict the probability of recession. We find that bivariate nonlinear models of output and the interest rate spread can successfully capture the shape of the business cycle in cases where linear models fail. Also, our nonlinear leading indicator models for USA, Canada and the UK outperform other models of GDP with respect to predicting the probability of recession.

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File URL: http://www.buseco.monash.edu.au/depts/ebs/pubs/wpapers/2002/wp20-02.pdf
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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 20/02.

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Length: 38 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:msh:ebswps:2002-20

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Related research
Keywords: Business Cycles; Leading Indicators; Model Evaluation; Nonlinear Models; Yield Spreads.;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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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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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. Ralf Becker & Denise Osborn, 2007. "Weighted smooth transition regressions," The School of Economics Discussion Paper Series 0724, Economics, The University of Manchester. [Downloadable!]
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