Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/sce/scecf0/134.html
   My bibliography  Save this paper

Predicting Uk Business Cycle Regimes

Author

Listed:
  • Chris R. Birchenhall

    (University of Manchester)

  • Marianne Sensier

    (University of Manchester)

  • Denise R. Osborn

    (University of Manchester)

Abstract
Following on from the work of Birchenhall, Jessen, Osborn & Simpson (1999) on predicting US business cycle regimes we apply the same methodology to construct a one period ahead model of classical business cycle regimes in the UK. Birchenhall et al generated the regime data from the NBER dating of peaks and troughs. In the UK there is no comparable dating committee and our first task is to date the UK peaks and troughs. Application of a simple mechanical rule based on changes in GDP produces a set of acceptable turning points, with one exception that is attributable to the 3-day working week in 1974. We are left with 3 peaks at 1973 Q3, 1979 Q2 and 1990 Q2 together with troughs at 1975 Q3, 1981 Q1 and 1992 Q2. Starting with a number of leading indicators several parsimonious one-period-ahead models are selected largely on the basis of the SIC criterion. A number of interesting results have emerged from this investigation. One model that performs well is based on "real" stock market prices and "real" term structure, together with differences in "real" M4. The first two terms are interpreted as measures of expected return on investment and the third term is interpreted as a measure of unexpected growth in liquidity. Both stock prices and M4 anticipate the 73-75 recession, the 79-81 recession is anticipated by the term structure while the 90-92 recession is anticipated by M4.

Suggested Citation

  • Chris R. Birchenhall & Marianne Sensier & Denise R. Osborn, 2000. "Predicting Uk Business Cycle Regimes," Computing in Economics and Finance 2000 134, Society for Computational Economics.
    • Handle: RePEc:sce:scecf0:134
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/cef00/papers/paper134.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kevin D. Hoover & Stephen J. Perez, 1999. "Data mining reconsidered: encompassing and the general-to-specific approach to specification search," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 167-191.
    2. RenÈ Garcia, 2002. "Are the Effects of Monetary Policy Asymmetric?," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 102-119, January.
    3. Gonzalo Camba-Mendez & George Kapetanios & Richard J. Smith & Martin R. Weale, 2001. "An automatic leading indicator of economic activity: forecasting GDP growth for European countries," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 1-37.
    4. Galbraith, John W. & Tkacz, Greg, 2000. "Testing for asymmetry in the link between the yield spread and output in the G-7 countries," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 657-672, October.
    5. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    6. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
    7. Davis, E Philip & Fagan, Gabriel, 1997. "Are Financial Spreads Useful Indicators of Future Inflation and Output Growth in EU Countries?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 701-714, Nov.-Dec..
    8. Chris Birchenhall & Denise Osborn & Marianne Sensier, 2001. "Predicting UK Business Cycle Regimes," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 179-195, May.
    9. Boldin, Michael D, 1994. "Dating Turning Points in the Business Cycle," The Journal of Business, University of Chicago Press, vol. 67(1), pages 97-131, January.
    10. Roma, Antonio & Torous, Walter, 1997. "The Cyclical Behavior of Interest Rates," Journal of Finance, American Finance Association, vol. 52(4), pages 1519-1542, September.
    11. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    12. James H. Stock & Mark W. Watson, 1993. "Introduction to "Business Cycles, Indicators and Forecasting"," NBER Chapters, in: Business Cycles, Indicators, and Forecasting, pages 1-10, National Bureau of Economic Research, Inc.
    13. J. M. Binner & A. Fielding & A. W. Mullineux, 1999. "Divisia money in a composite leading indicator of inflation," Applied Economics, Taylor & Francis Journals, vol. 31(8), pages 1021-1031.
    14. Don Harding & Adrian Pagan, 1999. "Dissecting the Cycle," Melbourne Institute Working Paper Series wp1999n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    15. Sin, Chor-Yiu & White, Halbert, 1996. "Information criteria for selecting possibly misspecified parametric models," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 207-225.
    16. repec:bla:econom:v:68:y:2001:i:270:p:243-67 is not listed on IDEAS
    17. Artis, Michael J & Kontolemis, Zenon G & Osborn, Denise R, 1997. "Business Cycles for G7 and European Countries," The Journal of Business, University of Chicago Press, vol. 70(2), pages 249-279, April.
    18. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    19. James Peery Cover, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1261-1282.
    20. Gerhard Bry & Charlotte Boschan, 1971. "Foreword to "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs"," NBER Chapters, in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages -1, National Bureau of Economic Research, Inc.
    21. James H. Stock & Mark W. Watson, 1993. "Business Cycles, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number stoc93-1.
    22. Stock, James H. & Watson, Mark W. (ed.), 1993. "Business Cycles, Indicators, and Forecasting," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226774886.
    23. Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 133-155, February.
    24. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
    25. Elena Andreou & Denise R. Osborn & Marianne Sensier, 2000. "A Comparison of the Statistical Properties of Financial Variables in the USA, UK and Germany over the Business Cycle," Manchester School, University of Manchester, vol. 68(4), pages 396-418, June.
    26. James H. Stock & Mark W. Watson, 1993. "A Procedure for Predicting Recessions with Leading Indicators: Econometric Issues and Recent Experience," NBER Chapters, in: Business Cycles, Indicators, and Forecasting, pages 95-156, National Bureau of Economic Research, Inc.
    27. Tatiana Kirsanova, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," National Institute of Economic and Social Research (NIESR) Discussion Papers 193, National Institute of Economic and Social Research.
    28. Birchenhall, Chris R, et al, 1999. "Predicting U.S. Business-Cycle Regimes," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 313-323, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sensier, Marianne & Artis, Michael & Osborn, Denise R. & Birchenhall, Chris, 2004. "Domestic and international influences on business cycle regimes in Europe," International Journal of Forecasting, Elsevier, vol. 20(2), pages 343-357.
    2. Terence C. Mills & Ping Wang, 2003. "Multivariate Markov Switching Common Factor Models for the UK," Bulletin of Economic Research, Wiley Blackwell, vol. 55(2), pages 177-193, April.
    3. Issler, Joao Victor & Vahid, Farshid, 2006. "The missing link: using the NBER recession indicator to construct coincident and leading indices of economic activity," Journal of Econometrics, Elsevier, vol. 132(1), pages 281-303, May.
    4. George Athanasopoulos & Heather M. Anderson & Farshid Vahid, 2007. "Nonlinear autoregressive leading indicator models of output in G-7 countries," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 63-87.
    5. Sergey V. Smirnov & Nikolay V. Kondrashov & Anna V. Petronevich, 2017. "Dating Cyclical Turning Points for Russia: Formal Methods and Informal Choices," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(1), pages 53-73, May.
    6. Duo Qin, 2010. "Econometric Studies of Business Cycles in the History of Econometrics," Working Papers 669, Queen Mary University of London, School of Economics and Finance.
    7. Abdullah Tahir & Jameel Ahmed & Waqas Ahmed, 2018. "Robust Quarterization of GDP and Determination of Business Cycle Dates for IGC Partner Countries," SBP Working Paper Series 97, State Bank of Pakistan, Research Department.
    8. Carriero, Andrea & Marcellino, Massimiliano, 2007. "A comparison of methods for the construction of composite coincident and leading indexes for the UK," International Journal of Forecasting, Elsevier, vol. 23(2), pages 219-236.
    9. Ivanova, Detelina & Lahiri, Kajal & Seitz, Franz, 2000. "Interest rate spreads as predictors of German inflation and business cycles," International Journal of Forecasting, Elsevier, vol. 16(1), pages 39-58.
    10. Carriero, Andrea & Marcellino, Massimiliano, 2007. "A comparison of methods for the construction of composite coincident and leading indexes for the UK," International Journal of Forecasting, Elsevier, vol. 23(2), pages 219-236.
    11. Castro, Vítor, 2010. "The duration of economic expansions and recessions: More than duration dependence," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 347-365, March.
    12. Morais, Igor Alexandre C. & Chauvet, Marcelle, 2011. "Leading Indicators for the Capital Goods Industry," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 31(1), March.
    13. Maximo Camacho & Gabriel Perez-Quiros, 2002. "This is what the leading indicators lead," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-80.
    14. Peter M. Summers & Penelope A. Smith, 2005. "How well do Markov switching models describe actual business cycles? The case of synchronization," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 253-274.
    15. E. Andersson & D. Bock & M. Frisen, 2006. "Some statistical aspects of methods for detection of turning points in business cycles," Journal of Applied Statistics, Taylor & Francis Journals, vol. 33(3), pages 257-278.
    16. Chang-Jin Kim & Chris Murray, 1999. "Permanent and Transitory Nature of Recessions," Discussion Papers in Economics at the University of Washington 0041, Department of Economics at the University of Washington.
    17. António Rua, 2017. "Dating the Portuguese business cycle," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    18. Harm Bandholz, 2005. "New Composite Leading Indicators for Hungary and Poland," ifo Working Paper Series 3, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    19. Döpke, Jörg, 1999. "Predicting Germany's recessions with leading indicators: Evidence from probit models," Kiel Working Papers 944, Kiel Institute for the World Economy (IfW Kiel).
    20. Vincent, BODART & Konstantin, KHOLODILIN & Fati, SHADMAN-MEHTA, 2005. "Identifying and Forecasting the Turning Points of the Belgian Business Cycle with Regime-Switching and Logit Models," Discussion Papers (ECON - Département des Sciences Economiques) 2005006, Université catholique de Louvain, Département des Sciences Economiques.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf0:134. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/sceeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.