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The missing link: using the NBER recession indicator to construct coincident and leading indices economic activity

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  • Issler, João Victor
  • Vahid, Farshid

Abstract

We use the information content in the decisions of the NBER Business Cycle Dating Committee to construct coincident and leading indices of economic activity for the United States. We identify the coincident index by assuming that the coincident variables have a common cycle with the unobserved state of the economy, and that the NBER business cycle dates signify the turning points in the unobserved state. This model allows us to estimate our coincident index as a linear combination of the coincident series. We establish that our index performs better than other currently popular coincident indices of economic activity.

Suggested Citation

  • Issler, João Victor & Vahid, Farshid, 2002. "The missing link: using the NBER recession indicator to construct coincident and leading indices economic activity," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 450, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:epgewp:450
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    References listed on IDEAS

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    1. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 449-475, June.
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    Cited by:

    1. Athanasopoulos, George & Issler, João Victor & Guillen, Osmani Teixeira Carvalho, 2005. "Forecasting accuracy and estimation uncertainty using VAR models with short- and long-term economic restrictions: a Monte-Carlo study," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 589, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    2. Izabel Cristina de Lima & Sueli Moro & Frederico Gonzaga Jayme Junior, 2006. "Ciclos E Previsão Cíclica: Um Modelo De Indicadores Antecedentes Para A Economia Brasileira," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 13, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Cubadda, Gianluca & Guardabascio, Barbara & Hecq, Alain, 2013. "A general to specific approach for constructing composite business cycle indicators," Economic Modelling, Elsevier, vol. 33(C), pages 367-374.
    4. Rachidi Kotchoni & Dalibor Stevanovic, 2013. "Probability and Severity of Recessions," CIRANO Working Papers 2013s-43, CIRANO.
    5. repec:fgv:epgrbe:v:67:n:1:a:4 is not listed on IDEAS
    6. Agne Reklaite, 2011. "Coincident, leading and recession indexes for the Lithuanian economy," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 91-108, July.
    7. Araújo, Fabio & Issler, João Victor & Fernandes, Marcelo, 2005. "Estimating the stochastic discount factor without a utility function," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 583, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    8. Cubadda, Gianluca & Hecq, Alain, 2003. "The Role of Common Cyclical Features for Coincident and Leading Indexes Building," Economics & Statistics Discussion Papers esdp03002, University of Molise, Dept. EGSeI.
    9. Alain Hecq, 2005. "Should we really care about building business cycle coincident indexes!," Applied Economics Letters, Taylor & Francis Journals, vol. 12(3), pages 141-144.
    10. Heij, C., 2007. "Improved forecasting with leading indicators: the principal covariate index," Econometric Institute Research Papers EI 2007-23, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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