Two Alternative Approaches to Modelling the Nonlinear Dynamics of the Composite Economic Indicator

Konstantin Kholodilin ()

Economics Bulletin, 2002, vol. 3, issue 26, 1-18

Abstract: This paper sets up a common unobserved factor model with smooth transition autoregressive dynamics. This model is compared to the already classical common factor model with regime-switching. Both models' in-sample and out-of-sample performance in terms of capturing and predicting the business cycle turning points is evaluated. The comparison of the model-derived probabilities to the NBER business cycle dating shows statistically equivalent in-sample forecasting accuracy of these techniques. The common factor model with exponential STAR outperforms the model with logistic STAR and that with Markov switching in terms of out-of-sample prediction with up to 3 month horizon.

JEL-codes: C5 E3 (search for similar items in EconPapers)
Date: 2002-11-06
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Citations: View citations in EconPapers (7)

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Working Paper: Two Alternative Approaches to Modelling the Nonlinear Dynamics of the Composite Economic Indicator (2002)
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