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A new approach to dating and predicting Australian business cycle phase changes

Listed author(s):
  • Allan Layton
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    Due to well-known lags, counter-cyclical macroeconomic policies often exacerbate, rather than ameliorate, business cycles. Early recognition of upcoming phase shifts, particularly contractions, may assist in fine-tuning such policies. This objective is pursued in the paper by applying Hamilton's (1989, 1990, 1991) quasi-Bayesian, Markovian, regime-switching model to monthly growth rates of leading, long-leading and coincident indexes of Australian economic activity. A simple rule applied to regime probabilities for each data point of the coincident index produces a phase chronology that is very similar to that produced by the Bry and Boschan (1971) turning point algorithm. The regime switching model is also applied to the leading and long-leading indexes. The application of a simple rule to the resultant regime probabilities is found to result in a potentially very reliable advance signalling system for Australian business cycle phase changes.

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    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 29 (1997)
    Issue (Month): 7 ()
    Pages: 861-868

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    Handle: RePEc:taf:applec:v:29:y:1997:i:7:p:861-868
    DOI: 10.1080/000368497326516
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