EconPapers    
Economics at your fingertips  
 

Modelling of Economic and Financial Conditions for Real‐Time Prediction of Recessions

Cem Çakmaklı, Hamza Dem I˙rcani and Sumru Altug
Authors registered in the RePEc Author Service: Hamza Demircan

Oxford Bulletin of Economics and Statistics, 2021, vol. 83, issue 3, 663-685

Abstract: In this paper, we propose a method for real‐time prediction of recessions using large sets of economic and financial variables with mixed frequencies. This method combines a dynamic factor model for the extraction of economic and financial conditions together with a tailored Markov regime switching specification for capturing their cyclical behaviour. Unlike conventional methods that estimate a single common cycle governing economic and financial conditions or extract economic and financial cycles in isolation of each other, the model allows for a common cycle which is reflected with potential phase shifts in the financial conditions estimated alongside with other parameters. This, in turn, provides timely recession predictions by enabling efficient modelling of the financial cycle systematically leading the business cycle. We examine the performance of the model using a mixed frequency ragged‐edge data set for Turkey in real time. The results show evidence for the superior predictive power of our specification by signalling oncoming recessions (expansions) as early as 3.6 (3.0) months ahead of the actual realization.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/obes.12413

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:obuest:v:83:y:2021:i:3:p:663-685

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0305-9049

Access Statistics for this article

Oxford Bulletin of Economics and Statistics is currently edited by Christopher Adam, Anindya Banerjee, Christopher Bowdler, David Hendry, Adriaan Kalwij, John Knight and Jonathan Temple

More articles in Oxford Bulletin of Economics and Statistics from Department of Economics, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2023-12-06
Handle: RePEc:bla:obuest:v:83:y:2021:i:3:p:663-685