An alternative business cycle dating procedure for South Africa
AbstractThis paper applies a Markov switching model to the South African economy to provide an alternative classification of the business cycle. Principal components analysis (PCA) is applied to 114 of the 186 variables used in the dating of the business cycle by the South African Reserve Bank. PCA establishes the co-movement in the dataset to calculate the reference turning points over the period 1982 to 2009. The large dataset broadens the information set available to date the turning points. The number of factors are chosen using a modified Bai and Ng (2002) method. The Markov switching model is also applied to Gross Domestic Product (GDP) as this is a commonly used variable to date the business cycle in the literature and provides a benchmark to the factor model. Our results indicate that the factor model accurately dates the South African business cycle and compares favourably to the SARB dating.
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Bibliographic InfoPaper provided by Economic Research Southern Africa in its series Working Papers with number 267.
Length: 25 pages
Date of creation: 2012
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Markov switching model; business cycles;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
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