Forecasting industrial production using models with business cycle asymmetry
This paper exploits an observed business cycle asymmetry, namely, a systematic shift in the dynamic relationship between output growth and an index for financial market conditions across expansionary and contractionary periods, to forecast monthly growth in industrial production. A bivariate model of monthly industrial production and the spread between the yield on 10-year Treasury notes and the federal funds rate is used as an example. This paper's method does not require a forecaster to make an exact exante determination of turning points in the output series being forecasted. A comparison of the forecast performance of various two-regime nonlinear and conventional linear models suggests that a measureable gain can be made by considering models which explicitly incorporate asymmetry in data.
Volume (Year): (1998)
Issue (Month): ()
|Contact details of provider:|| Postal: |
Phone: (415) 974-2000
Fax: (415) 974-3333
Web page: http://www.frbsf.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Deutsch, Melinda & Granger, Clive W. J. & Terasvirta, Timo, 1994. "The combination of forecasts using changing weights," International Journal of Forecasting, Elsevier, vol. 10(1), pages 47-57, June.
- Granger, Clive W. J. & Terasvirta, Timo, 1993. "Modelling Non-Linear Economic Relationships," OUP Catalogue, Oxford University Press, number 9780198773207.
- Christina D. Romer, 1992.
"Remeasuring Business Cycles,"
NBER Working Papers
4150, National Bureau of Economic Research, Inc.
- Daniel E. Sichel, 1989.
"Business cycle asymmetry: a deeper look,"
Working Paper Series / Economic Activity Section
93, Board of Governors of the Federal Reserve System (U.S.).
- James H. Stock & Mark W. Watson, 1993.
"A Procedure for Predicting Recessions with Leading Indicators: Econometric Issues and Recent Experience,"
in: Business Cycles, Indicators and Forecasting, pages 95-156
National Bureau of Economic Research, Inc.
- James H. Stock & Mark W. Watson, 1992. "A Procedure for Predicting Recessions With Leading Indicators: Econometric Issues and Recent Experience," NBER Working Papers 4014, National Bureau of Economic Research, Inc.
- Pindyck, Robert, 1989.
"Irreversibility, uncertainty, and investment,"
Policy Research Working Paper Series
294, The World Bank.
- Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
- Victor Zarnowitz, 1972. "Forecasting Economic Conditions: The Record and the Prospect," NBER Chapters, in: Economic Research: Retrospect and Prospect, Volume 1, The Business Cycle Today, pages 183-239 National Bureau of Economic Research, Inc.
- 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.
- Simon M. Potter, 1993.
"A Nonlinear Approach to U.S. GNP,"
UCLA Economics Working Papers
693, UCLA Department of Economics.
- Chan G. Huh, 1994. "Asymmetry in the bivariate relationship between output and interest rates," Working Papers in Applied Economic Theory 94-13, Federal Reserve Bank of San Francisco.
- Rendigs Fels & C. Elton Hinshaw, 1968. "Forecasting and Recognizing Business Cycle Turning Points," NBER Books, National Bureau of Economic Research, Inc, number fels68-1, October.
- Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
- Mark W. French & Daniel E. Sichel, 1991.
"Cyclical patterns in the variance of economic activity,"
Finance and Economics Discussion Series
161, Board of Governors of the Federal Reserve System (U.S.).
- French, Mark W & Sichel, Daniel E, 1993. "Cyclical Patterns in the Variance of Economic Activity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 113-19, January.
- Filardo, Andrew J, 1994.
"Business-Cycle Phases and Their Transitional Dynamics,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 12(3), pages 299-308, July.
- Tom Doan, . "RATS programs to replicate Filardo JBES 1994 paper with time-varying Markov switching," Statistical Software Components RTZ00059, Boston College Department of Economics.
- Andrew J. Filardo, 1993. "Business cycle phases and their transitional dynamics," Research Working Paper 93-14, Federal Reserve Bank of Kansas City.
- Engle, Robert F. & Granger, C. W. J. & Kraft, Dennis, 1984. "Combining competing forecasts of inflation using a bivariate arch model," Journal of Economic Dynamics and Control, Elsevier, vol. 8(2), pages 151-165, November.
- Michael D. Boldin, 1992. "Using switching models to study business cycle asymmetries: 1. overview of methodology and application," Research Paper 9211, Federal Reserve Bank of New York.
- Ben Bernanke, 1990.
"On the Predictive Power of Interest Rates and Interest Rate Spreads,"
NBER Working Papers
3486, National Bureau of Economic Research, Inc.
- Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
- Meese, R. & Rogoff, K., 1988.
"Was It Real? The Exchange Rate-Interest Differential Ralation Over The Modern Floating-Rate Period,"
368, Wisconsin Madison - Social Systems.
- Meese, Richard A & Rogoff, Kenneth, 1988. " Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period," Journal of Finance, American Finance Association, vol. 43(4), pages 933-48, September.
- Francis X. Diebold & Roberto S. Mariano, 1991. "Comparing predictive accuracy I: an asymptotic test," Discussion Paper / Institute for Empirical Macroeconomics 52, Federal Reserve Bank of Minneapolis.
- Kling, John L, 1987. "Predicting the Turning Points of Business and Economic Time Series," The Journal of Business, University of Chicago Press, vol. 60(2), pages 201-38, April.
- Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
- Ploberger, Werner & Kramer, Walter, 1992. "The CUSUM Test with OLS Residuals," Econometrica, Econometric Society, vol. 60(2), pages 271-85, March.
When requesting a correction, please mention this item's handle: RePEc:fip:fedfer:y:1998:p:29-41:n:1. 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: (Diane Rosenberger)
If references are entirely missing, you can add them using this form.