Indicator Based Forecasting of Business Cycles in Azerbaijan

Fuad Mammadov () and Shaiq Shaig Adigozalov

MPRA Paper from University Library of Munich, Germany

Abstract: This paper has attempted to construct leading indicator systems and based on that to predict future contraction period of the Azerbaijan non-oil economy using more than 100 publicly available economic and financial data. Our results show plausible and significant performance of composite leading indicator system with average leading time of 7.2 months. We found that between January of 2000 and May of 2014, there were 6 turning points in Azerbaijan non-oil economy, consisting of three peaks and three troughs corresponding three expansion and four contraction periods. It turns out that the average duration of expansion and contraction phases is 43 and 10 month, respectively. Based on selected leading indicators we constructed composite indicator is found to be able to predict all the six turning points. Using dynamic probit model we estimated contraction probability of non-oil output gap for the future period. Out-of-sample as well as in-sample forecast performance suggest that the leading indicator systems have significant predictive power and could be used as a useful tool for economic forecasting.

Keywords: Business cycles; Dating; Turning points; Forecasting; Probit Model (search for similar items in EconPapers)
JEL-codes: C25 C53 E32 (search for similar items in EconPapers)
Date: 2014-10-10
New Economics Papers: this item is included in nep-cis, nep-cwa, nep-ene, nep-for, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:64367

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