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Predicting Uk Business Cycle Regimes

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Author Info
Chris R. Birchenhall (University of Manchester)
Marianne Sensier (University of Manchester)
Denise R. Osborn (University of Manchester)

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Abstract

Following on from the work of Birchenhall, Jessen, Osborn & Simpson (1999) on predicting US business cycle regimes we apply the same methodology to construct a one period ahead model of classical business cycle regimes in the UK. Birchenhall et al generated the regime data from the NBER dating of peaks and troughs. In the UK there is no comparable dating committee and our first task is to date the UK peaks and troughs. Application of a simple mechanical rule based on changes in GDP produces a set of acceptable turning points, with one exception that is attributable to the 3-day working week in 1974. We are left with 3 peaks at 1973 Q3, 1979 Q2 and 1990 Q2 together with troughs at 1975 Q3, 1981 Q1 and 1992 Q2. Starting with a number of leading indicators several parsimonious one-period-ahead models are selected largely on the basis of the SIC criterion. A number of interesting results have emerged from this investigation. One model that performs well is based on "real" stock market prices and "real" term structure, together with differences in "real" M4. The first two terms are interpreted as measures of expected return on investment and the third term is interpreted as a measure of unexpected growth in liquidity. Both stock prices and M4 anticipate the 73-75 recession, the 79-81 recession is anticipated by the term structure while the 90-92 recession is anticipated by M4.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2000 with number 134.

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Date of creation: 05 Jul 2000
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Handle: RePEc:sce:scecf0:134

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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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(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. 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)
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    Other versions:
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  10. 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!]
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  11. 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!]
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  12. René Garcia & Richard Luger, 2005. "The Canadian Macroeconomy and the Yield Curve: An Equilibrium-Based Approach," Working Papers 05-36, Bank of Canada. [Downloadable!]
  13. 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!]
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  14. 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!]
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  16. 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!]
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  17. 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!]
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  18. 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!]
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