Forecasting Chinese Business Cycle Using Long-term Interest Rate Comovements
Kiryoung Lee () and
Chanik Jo ()
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Kiryoung Lee: Sejong University, 209 Neungdong-ro, Gunja-dong, Gwangjin-gu, Seoul, Republic of Korea.
Chanik Jo: Rotman School of Management, Ph.D. candidate, University of Toronto, 105 St. George Street, M5S 2E8, Toronto, Canada
Journal for Economic Forecasting, 2018, issue 2, 118-134
This paper analyses the relationship between time-varying long-term interest rate comovement and the Chinese business cycle. For this purpose, we estimate the dynamic conditional correlation (DCC) between China and 10 of China’s neighboring countries and the U.S. long-term interest rate and construct the comovement measures. The empirical results show the first evidence that long-term interest rate comovement indeed has predictive power for future Chinese business cycle for both in-sample and out-of-sample. This result implies the growing importance of the regional factor along with the global factor. Most importantly, our result provides practitioners and academia a novel indicator which is able to predict the future Chinese business cycle beyond the traditional business cycle forecasters – term spread, excess stock returns, leading indicator, Production Manufacturing Index, and U.S. interest rate.
Keywords: dynamic conditional correlations; recession; integrated markets; forecasting accuracy; regional factor; global factor (search for similar items in EconPapers)
JEL-codes: F3 F10 F37 F44 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2018:i:2:p:118-134
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