Anticipating business-cycle turning points in real time using density forecasts from a VAR

Sven Schreiber

No 2014/2, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: For the timely detection of business-cycle turning points we suggest to use mediumsized linear systems (subset VARs with automated zero restrictions) to forecast the relevant underlying variables, and to derive the probability of the turning point from the forecast density as the probability mass below (or above) a given threshold value. We show how this approach can be used in real time in the presence of data publication lags and how it can capture the part of the data revision process that is systematic. Then we apply the method to US and German monthly data. In an out-of-sample exercise (for 2007-2012/13) the turning points can be signalled before the official data publication confirms them (but not before they happened in reality).

Keywords: density forecasts; business-cycle turning points; real-time data; nowcasting; great recession (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ets, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Anticipating business-cycle turning points in real time using density forecasts from a VAR (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:20142

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