Sequential methodology for signaling business cycle turning points

Vasyl Golosnoy and Jens Boysen-Hogrefe

No 1528, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: The dates of U.S. business cycle are reported by NBER with a considerable delay, so an early notion of turning points is of particular interest. This paper proposes a novel sequential approach designed for timely signaling these turning points. A directional cumulated sum decision rule is adapted for the purpose of on-line monitoring of transitions between subsequent phases of economic activity. The introduced procedure shows a sound detection ability for business cycle peaks and troughs compared to the established dynamic factor Markov switching methodology. It exhibits a range of theoretical optimality properties for early signaling, moreover, it is transparent and easy to implement.

Keywords: Business cycle; CUSUM control chart; Dynamic Factor Markov switching models; Early signaling; NBER dating (search for similar items in EconPapers)
JEL-codes: C44 C50 E32 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1528

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