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Markov-Switching and the Ifo Business Climate: The Ifo Business Cycle Traffic Lights

  • Klaus Abberger
  • Wolfgang Nierhaus

    ()

Business cycle indicators are used to assess the economic situation of countries or regions. They are closely watched by the public, but are not easy to interpret. Does a current movement of the indicator signal a turning point or not? With the help of Markov Switching Models movements of indicators can be transformed in probability statements. In this article, the most important leading indicator of the German business cycle, the Ifo Business Climate, is described by a Markov Switching Model. Real-time probabilities for the current business-cycle regime are derived and presented in an innovative way: as the Ifo traffic lights.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-01/cesifo1_wp2936.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2936.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2936
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  1. Benoit Bellone, 2005. "Classical Estimation of Multivariate Markov-Switching Models using MSVARlib," Econometrics 0508017, EconWPA.
  2. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-91, July.
  3. Potter, Simon M, 1999. " Nonlinear Time Series Modelling: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 13(5), pages 505-28, December.
  4. Klaus Abberger & Wolfgang Nierhaus, 2009. "Months for Cyclical Dominance und ifo Geschäftsklima," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 62(07), pages 11-19, 04.
  5. Klaus Abberger & Klaus Wohlrabe, 2006. "Einige Prognoseeigenschaften des ifo Geschäftsklimas - Ein Überblick über die neuere wissenschaftliche Literatur," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 59(22), pages 19-26, November.
  6. repec:ces:ifosdt:v::y:2009:i::p:11-19 is not listed on IDEAS
  7. Klaus Abberger & Wolfgang Nierhaus, 2007. "Das ifo Geschäftsklima und Wendepunkte der deutschen Konjunktur," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(03), pages 26-31, 02.
  8. Daniel R. Smith & Allan Layton, 2007. "Comparing Probability Forecasts in Markov Regime Switching Business Cycle Models," Journal of Business Cycle Measurement and Analysis, OECD Publishing,Centre for International Research on Economic Tendency Surveys, vol. 2007(1), pages 79-98.
  9. Goldfeld, Stephen M. & Quandt, Richard E., 1973. "A Markov model for switching regressions," Journal of Econometrics, Elsevier, vol. 1(1), pages 3-15, March.
  10. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, 07.
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