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Identification and real-time forecasting of Norwegian business cycles

Listed author(s):
  • Knut Are Aastveit

    (Norges Bank (Central Bank of Norway))

  • Anne Sofie Jore

    (Norges Bank (Central Bank of Norway))

  • Francesco Ravazzolo

    (Norges Bank (Central Bank of Norway) and BI Norwegian Business School)

We define and forecast classical business cycle turning points for the Norwegian economy. When defining reference business cycles, we compare a univariate and a multivariate Bry-Boschan approach with univariate Markov-switching models and Markov-switching factor models. On the basis of a receiver operating characteristic curve methodology and a comparison of business cycle turning points with Norway's main trading partners, we find that a Markov-switching factor model provides the most reasonable definition of Norwegian business cycles for the sample 1978Q1-2011Q4. In a real-time out-of-sample forecasting exercise, focusing on the last recession, we show that univariate Markov-switching models applied to surveys and a financial conditions index are timely and accurate in calling the last peak in real time. The models are less accurate and timely in calling the trough in real time.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2015/92015/
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Paper provided by Norges Bank in its series Working Paper with number 2015/09.

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Length: 25 pages
Date of creation: 09 May 2015
Handle: RePEc:bno:worpap:2015_09
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