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Forecasting industrial production using models with business cycle asymmetry

  • Chan Huh
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    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.

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    File URL: http://www.frbsf.org/econrsrch/econrev/98-1/29-42.pdf
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    Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

    Volume (Year): (1998)
    Issue (Month): ()
    Pages: 29-41

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    Handle: RePEc:fip:fedfer:y:1998:p:29-41:n:1
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    19. 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.
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