Advanced Search
MyIDEAS: Login

Detecting Turning Points with Many Predictors through Hidden Markov Models

Contents:

Author Info

  • Benoit Bellone

    (Direction de la prévision et de l'analyse économique)

  • David Saint-Martin

    (Ecole Nationale des Ponts et Chaussées)

Abstract

This paper explores the American business cycle with the Hidden Markov Model (HMM) as a monitoring tool using monthly data. It exhibits ten US time series which offer reliable information to detect recessions in real time. It also proposes and assesses the performances of different and complementary “recession models” based on Markovian processes, discusses the most efficient and easiest way of encompassing information through these models and draws three main conclusions: simple HMM are decisive to monitor the business cycle and some series are proved highly reliable; more sophisticated models such as the Dynamic Factor with Markov Switching (DFMS) model or Stock and Watson’s Experimental Recession Index seem not to be more powerful than simple (univariate or pseudo-multivariate) Hidden Markov Models, which remain far more parsimonious; combining information in temporal space seems to work marginally better than in probability space for high frequency data. We conclude about leading and “real time detection” properties related to HMM and give some hints for further research.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/em/papers/0407/0407001.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0407001.

as in new window
Length: 34 pages
Date of creation: 04 Jul 2004
Date of revision:
Handle: RePEc:wpa:wuwpem:0407001

Note: Type of Document - pdf; pages: 34. This paper is dedicated to an analysis of business cycle indicator leading to a stochastic recession index.
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: Business Cycle; Markov Switching; Dynamic Factor; Coincident Indicators;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Francis X. Diebold & Glenn D. Rudebusch, 1994. "Measuring Business Cycles: A Modern Perspective," NBER Working Papers 4643, National Bureau of Economic Research, Inc.
  2. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, May.
  3. Marcelle Chauvet & Jeremy Piger, 2002. "Identifying business cycle turning points in real time," Working Paper 2002-27, Federal Reserve Bank of Atlanta.
  4. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
  5. Albert, James H & Chib, Siddhartha, 1993. "Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 1-15, January.
  6. Christophe Croux & Mario Forni & Lucrezia Reichlin, 2001. "A measure of co-movement for economic variables: theory and empirics," ULB Institutional Repository 2013/10139, ULB -- Universite Libre de Bruxelles.
  7. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," The Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January.
  8. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  9. Ferrara, Laurent, 2003. "A three-regime real-time indicator for the US economy," Economics Letters, Elsevier, vol. 81(3), pages 373-378, December.
  10. Eva Andersson & David Bock & Marianne Frisén, 2004. "Detection of Turning Points in Business Cycles," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2004(1), pages 93-108.
  11. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-96, November.
  12. Anas, Jacques & Ferrara, Laurent, 2002. "Un indicateur d'entrée et sortie de récession: application aux Etats-Unis
    [A start-end recession index: Application for United-States]
    ," MPRA Paper 4043, University Library of Munich, Germany.
  13. Harding, Don & Pagan, Adrian, 2003. "A comparison of two business cycle dating methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1681-1690, July.
  14. Peter Reinhard Hansen, 2001. "An Unbiased and Powerful Test for Superior Predictive Ability," Working Papers 2001-06, Brown University, Department of Economics.
  15. Stéphane Grégoir & Fabrice Lenglart, 1998. "Measuring the Probability of a Business Cycle Turning Point by Using a Multivariate Qualitative Hidden Markov Model," Working Papers 98-48, Centre de Recherche en Economie et Statistique.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Benoit Bellone, 2004. "Une lecture probabiliste du cycle d’affaires américain," Econometrics 0407002, EconWPA, revised 28 Mar 2005.
  2. Amine LAHIANI & Olivier SCAILLET, . "Testing for threshold effect in ARFIMA models: Application to US unemployment rate data," Swiss Finance Institute Research Paper Series 08-42, Swiss Finance Institute.
  3. Benoit Bellone, 2004. "MSVARlib: a new Gauss library to estimate multivariate Hidden Markov Models," Econometrics 0406004, EconWPA.
  4. Mendoza, Liu & Morales, Daniel, 2012. "Constructing a real-time coincident recession index: an application to the Peruvian economy," Working Papers 2012-020, Banco Central de Reserva del Perú.
  5. Benoit Bellone, 2005. "Classical Estimation of Multivariate Markov-Switching Models using MSVARlib," Econometrics 0508017, EconWPA.
  6. Li, Yushu & Reese, Simon, 2014. "Wavelet improvement in turning point detection using a Hidden Markov Model," Discussion Papers 2014/10, Department of Business and Management Science, Norwegian School of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:0407001. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.