Economists have long been involved in the search for a few key indicators that predict the behavior of market economies. For Canada, it has been shown that the yield curve reliably tilts down and that real M1 growth declines before economic contraction, but this has been demonstrated almost exclusively in the context of single estimation equations or atheoretical VARs. This paper offers an alternative approach to the study of economic turning points. To qualify as a business-cycle indicator, a variable must behave differently when an economy is approaching or in recession than it does during economic expansions. That simple logic admits a variety of parametric and nonparametric tests of a variable’s usefulness, in forecasting. We examine the behavior around recessions of sixteen Canadian and U.S. time series. In the end we find that only the slopes of the Canadian and the U.S. term structure meet the prespecified criteria; the change in the nominal MCI and in real M1 follow behind.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
13884.
Find related papers by JEL classification: E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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.:
Diebold, Francis X & Rudebusch, Glenn D, 1989.
"Scoring the Leading Indicators,"
Journal of Business,
University of Chicago Press, vol. 62(3), pages 369-91, July.
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