Constructing a Coincident Index of Business Cycles Without Assuming a One-Factor Model
Yasutomo Murasawa () and
Roberto Mariano ()
No 710, Econometric Society 2004 Far Eastern Meetings from Econometric Society
The Stock--Watson coincident index and its subsequent extensions assume a static linear one-factor model for the component indicators. Such assumption is restrictive in practice, however, with as few as four indicators. In fact, such assumption is unnecessary if one poses the index construction problem as optimal prediction of latent monthly real GDP. This paper estimates a VAR model for latent monthly real GDP and other indicators using the observable mixed-frequency series. The EM algorithm is useful for overcoming the computational difficulty, especially in model selection. The smoothed estimate of latent monthly real GDP is the proposed index
Keywords: state-space model; mixed-frequency; EM algorithm; monthly real GDP (search for similar items in EconPapers)
JEL-codes: C32 C43 C53 (search for similar items in EconPapers)
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Working Paper: Constructing a Coincident Index of Business Cycles without Assuming a One-factor Model (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:710
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