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An Alternative Business Cycle Dating Procedure for South Africa

Author

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  • Adel Bosch
  • Franz Ruch

Abstract

This paper applies a Markov switching model to the South African economy to provide an alternative classification of the business cycle. Principal components analysis (PCA) is applied to 114 of the 186 variables used in the dating of the business cycle by the South African Reserve Bank. PCA establishes the co-movement in the dataset to calculate the reference turning points over the period 1982 to 2009. The large dataset broadens the information set available to date the turning points. The number of factors are chosen using a modified Bai and Ng (2002) method. The Markov switching model is also applied to Gross Domestic Product (GDP) as this is a commonly used variable to date the business cycle in the literature and provides a benchmark to the factor model. Our results indicate that the factor model accurately dates the South African business cycle and compares favourably to the SARB dating.

Suggested Citation

  • Adel Bosch & Franz Ruch, 2012. "An Alternative Business Cycle Dating Procedure for South Africa," Working Papers 5210, South African Reserve Bank.
    • Handle: RePEc:rbz:wpaper:5210
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    Cited by:

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    2. Ferdi Botha & Gavin Keeton, 2014. "A Note on the (Continued) Ability of the Yield Curve to Forecast Economic Downturns in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 82(3), pages 468-473, September.
    3. Greg Farrell & Esti Kemp, 2020. "Measuring the Financial Cycle in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 88(2), pages 123-144, June.
    4. Malibongwe Cyprian Nyati & Paul-Francois Muzindutsi & Christian Kakese Tipoy, 2023. "Macroprudential and Monetary Policy Interactions and Coordination in South Africa: Evidence from Business and Financial Cycle Synchronisation," Economies, MDPI, vol. 11(11), pages 1-23, November.
    5. Balcilar, Mehmet & Gupta, Rangan & Jooste, Charl & Ranjbar, Omid, 2016. "Characterising the South African business cycle: is GDP difference-stationary or trend-stationary in a Markov-switching setup? - Il ciclo economico del Sud Africa: il PIL è stazion ario alle differenz," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(1), pages 33-44.
    6. Martin Wichlinski & Rajendra Rajaram, 2019. "The Use of RONA/WACC as a Proxy for Investment Quality," Journal of Economics and Behavioral Studies, AMH International, vol. 10(6), pages 177-185.

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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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