Kiel Working Papers, Kiel Institute for World Economics
No 1528:
Sequential Methodology for Signaling Business Cycle Turning Points
Vasyl Golosnoy and Jens Hogrefe
Abstract: The dates of U.S. business cycle are reported by NBER with
a considerable delay, so an early notion of turning points is of particular
interest. This paper proposes a novel sequential approach designed for
timely signaling these turning points. A directional cumulated sum decision
rule is adapted for the purpose of on-line monitoring of transitions
between subsequent phases of economic activity. The introduced procedure
shows a sound detection ability for business cycle peaks and troughs
compared to the established dynamic factor Markov switching methodology. It
exhibits a range of theoretical optimality properties for early signaling,
moreover, it is transparent and easy to implement
Keywords: Business cycle; CUSUM control chart; Dynamic Factor Markov switching models; Early signaling; NBER dating; (follow links to similar papers)
JEL-Codes: C44,; C50,; E32; (follow links to similar papers)
26 pages, June 2009
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