Forecasting industrial production using models with business cycle asymmetry

Chan Guk Huh

Economic Review, 1998, 29-41

Abstract: This paper exploits an observed business cycle asymmetry, namely, a systematic shift in the dynamic relationship between output growth and an index for financial market conditions across expansionary and contractionary periods, to forecast monthly growth in industrial production. A bivariate model of monthly industrial production and the spread between the yield on 10-year Treasury notes and the federal funds rate is used as an example. This paper's method does not require a forecaster to make an exact exante determination of turning points in the output series being forecasted. A comparison of the forecast performance of various two-regime nonlinear and conventional linear models suggests that a measureable gain can be made by considering models which explicitly incorporate asymmetry in data.

Keywords: Business cycles; Industrial productivity; Econometric models (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (6)

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