A new approach to dating and predicting Australian business cycle phase changes
Due to well-known lags, counter-cyclical macroeconomic policies often exacerbate, rather than ameliorate, business cycles. Early recognition of upcoming phase shifts, particularly contractions, may assist in fine-tuning such policies. This objective is pursued in the paper by applying Hamilton's (1989, 1990, 1991) quasi-Bayesian, Markovian, regime-switching model to monthly growth rates of leading, long-leading and coincident indexes of Australian economic activity. A simple rule applied to regime probabilities for each data point of the coincident index produces a phase chronology that is very similar to that produced by the Bry and Boschan (1971) turning point algorithm. The regime switching model is also applied to the leading and long-leading indexes. The application of a simple rule to the resultant regime probabilities is found to result in a potentially very reliable advance signalling system for Australian business cycle phase changes.
Year of publication: |
1997
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Authors: | Layton, Allan |
Published in: |
Applied Economics. - Taylor & Francis Journals, ISSN 0003-6846. - Vol. 29.1997, 7, p. 861-868
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Publisher: |
Taylor & Francis Journals |
Saved in:
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