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Nonlinear Dynamics and Wavelets for Business Cycle Analysis

In: Wavelet Applications in Economics and Finance

Author

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  • Peter Martey Addo

    (Université Paris 1 - Panthéon-Sorbonne
    Università Ca’Foscari of Venice
    Université Paris 1- Panthéon-Sorbonne)

  • Monica Billio

    (Università Ca’Foscari of Venice)

  • Dominique Guégan

    (Université Paris I—Panthéon Sorbonne)

Abstract

We provide a signal modality analysis to characterize and detect nonlinearity schemes in the US Industrial Production Index time series. The analysis is achieved by using the recently proposed “delay vector variance” (DVV) method, which examines local predictability of a signal in the phase space to detect the presence of determinism and nonlinearity in a time series. Optimal embedding parameters used in the DVV analysis are obtained via a differential entropy based method using Fourier and wavelet-based surrogates. A complex Morlet wavelet is employed to detect and characterize the US business cycle. A comprehensive analysis of the feasibility of this approach is provided. Our results coincide with the business cycles peaks and troughs dates published by the National Bureau of Economic Research (NBER).

Suggested Citation

  • Peter Martey Addo & Monica Billio & Dominique Guégan, 2014. "Nonlinear Dynamics and Wavelets for Business Cycle Analysis," Dynamic Modeling and Econometrics in Economics and Finance, in: Marco Gallegati & Willi Semmler (ed.), Wavelet Applications in Economics and Finance, edition 127, pages 73-100, Springer.
    • Handle: RePEc:spr:dymchp:978-3-319-07061-2_4
    DOI: 10.1007/978-3-319-07061-2_4
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    Cited by:

    1. Marfatia, Hardik A., 2017. "A fresh look at integration of risks in the international stock markets: A wavelet approach," Review of Financial Economics, Elsevier, vol. 34(C), pages 33-49.
    2. María del Carmen Valls Martínez & Pedro Antonio Martín Cervantes, 2021. "Testing the Resilience of CSR Stocks during the COVID-19 Crisis: A Transcontinental Analysis," Mathematics, MDPI, vol. 9(5), pages 1-24, March.
    3. Hardik A. Marfatia, 2017. "A fresh look at integration of risks in the international stock markets: A wavelet approach," Review of Financial Economics, John Wiley & Sons, vol. 34(1), pages 33-49, September.
    4. Vera Ivanyuk, 2021. "Modeling of Crisis Processes in the Financial Market," Economies, MDPI, vol. 9(4), pages 1-17, October.

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