Monitoring Business Cycles with Structural Breaks
This paper examines the predictive content of coincident variables for monitoring U.S. recessions in the presence of instabilities. We propose several specifications of a probit model for classifying phases of the business cycle. We find strong evidence in favor of the ones that allow for the possibility that the economy has experienced recurrent breaks. The recession probabilities of these models provide a clearer classification of the business cycle into expansion and recession periods, and superior performance in the ability to correctly call recessions and to avoid false recession signals. Overall, the sensitivity, specificity, and accuracy of these models are far superior as well as their ability to timely signal recessions. The results indicate the importance of considering recurrent breaks for monitoring business cycles.
|Date of creation:||31 Dec 2007|
|Date of revision:||31 Apr 2009|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chauvet, Marcelle & Potter, Simon, 2002. "Predicting a recession: evidence from the yield curve in the presence of structural breaks," Economics Letters, Elsevier, vol. 77(2), pages 245-253, October.
- Marcelle Chauvet & Simon Potter, 2005.
"Forecasting recessions using the yield curve,"
Journal of Forecasting,
John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
- Marianne Sensier & Dick van Dijk, 2004.
"Testing for Volatility Changes in U.S. Macroeconomic Time Series,"
The Review of Economics and Statistics,
MIT Press, vol. 86(3), pages 833-839, August.
- M Sensier & D van Dijk, 2003. "Testing for Volatility Changes in US Macroeconomic Time Series," Centre for Growth and Business Cycle Research Discussion Paper Series 36, Economics, The Univeristy of Manchester.
- Chib, Siddhartha, 2001. "Markov chain Monte Carlo methods: computation and inference," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 57, pages 3569-3649 Elsevier.
- Marcelle Chauvet & Simon M. Potter, 2001.
"Recent changes in the U.S. business cycle,"
126, Federal Reserve Bank of New York.
- Dueker, Michael, 1999.
"Conditional Heteroscedasticity in Qualitative Response Models of Time Series: A Gibbs-Sampling Approach to the Bank Prime Rate,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 17(4), pages 466-72, October.
- Michael J. Dueker, 1998. "Conditional heteroskedasticity in qualitative response models of time series: a Gibbs sampling approach to the bank prime rate," Working Papers 1998-011, Federal Reserve Bank of St. Louis.
- Michael Dueker, 2005.
"Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of U.S. Recessions,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 23, pages 96-104, January.
- Tom Doan, . "RATS programs to replicate Dueker(2005) JBES dynamic probit model," Statistical Software Components RTZ00049, Boston College Department of Economics.
- Michael J. Dueker, 2003. "Dynamic forecasts of qualitative variables: a Qual VAR model of U.S. recessions," Working Papers 2001-012, Federal Reserve Bank of St. Louis.
- Gary Koop & Simon M. Potter, 2007. "Estimation and Forecasting in Models with Multiple Breaks," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 763-789.
- Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-96, November.
- Marcelle Chauvet & James D. Hamilton, 2005. "Dating Business Cycle Turning Points," NBER Working Papers 11422, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:15097. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.