Nonlinear Autoregresssive Leading Indicator Models of Output in G-7 Countries

Heather Anderson, George Athanasopoulos () and Farshid Vahid

No 20/02, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper studies linear and nonlinear autoregressive leading indicator models of business cycles in G7 countries. The models use the spread between short-term and long-term interest rates as leading indicators for GDP, and their success in capturing business cycles is gauged by non-parametric shape tests, and their ability to predict the probability of recession. We find that bivariate nonlinear models of output and the interest rate spread can successfully capture the shape of the business cycle in cases where linear models fail. Also, our nonlinear leading indicator models for USA, Canada and the UK outperform other models of GDP with respect to predicting the probability of recession.

Keywords: Business Cycles; Leading Indicators; Model Evaluation; Nonlinear Models; Yield Spreads. (search for similar items in EconPapers)
JEL-codes: C22 C23 E17 E37 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2002-12
New Economics Papers: this item is included in nep-ecm and nep-ets
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http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2002/wp20-02.pdf (application/pdf)

Related works:
Journal Article: Nonlinear autoregressive leading indicator models of output in G-7 countries (2007)
Working Paper: Nonlinear autoregressive leading indicator models of output in G-7 countries (2006)
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