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Sequential Detection of US Business Cycle Turning Points: Performances of Shiryayev-Roberts, CUSUM and EWMA Procedures

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  • Bakhodir A Ergashev

    (Washington University)

Abstract

In this paper we consider the problem of sequential detecting change points in economic time series. We compare the performances of three well known procedures, Shiryayev-Roberts, CUSUM and EWMA, in the problem of early detection of the US business cycle turning points using leading indicators or some financial series. The comparison was done separately for detecting recessions and expansions during the period of 1955-2003. We found that in most cases the Shiryayev-Roberts procedure is superior to the other two in detecting turning points with leading indicators. At the same time the CUSUM procedure performs better in detecting turning points with stock price indices.

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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0402001.

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Length: 17 pages
Date of creation: 02 Feb 2004
Date of revision: 16 Mar 2004
Handle: RePEc:wpa:wuwpem:0402001

Note: Type of Document - ; prepared on WinXP; pages: 17; figures: 6
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Web page: http://128.118.178.162

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Keywords: Business cycles; change point detection; leading indicators;

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  1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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  7. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  8. Bruce E. Hansen, 1998. "Testing for Structural Change in Conditional Models," Boston College Working Papers in Economics 310., Boston College Department of Economics.
  9. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
  10. Cooley, Thomas F & Prescott, Edward C, 1973. "An Adaptive Regression Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 364-71, June.
  11. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(2), pages 307-28, April.
  12. Cooley, Thomas F & Prescott, Edward C, 1976. "Estimation in the Presence of Stochastic Parameter Variation," Econometrica, Econometric Society, Econometric Society, vol. 44(1), pages 167-84, January.
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