Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229677
Authors: 
van Os, Bram
van Dijk, Dick
Year of Publication: 
2020
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2020-057/VI
Abstract: 
The dynamic factor Markov-switching (DFMS) model introduced by Diebold and Rudebusch (1996) has proven to be a powerful framework to measure the business cycle. We extend the DFMS model by allowing for time-varying transition probabilities, with the aim of accelerating the real-time dating of turning points between expansion and recession regimes. Time-variation of the transition probabilities is brought about endogenously using the accelerated score-driven approach and exogenously using the term spread. In a real-time application using the four components of The Conference Board’s Coincident Economic Index for the period 1959-2020, we find that signaling power for recessions is significantly improved and are able to date the 2001 and 2008 recession peaks four and ten months before the NBER.
Subjects: 
Business cycles
generalized autoregressive score models
time-varying transition probabilities
turning points
JEL: 
E32
C32
Document Type: 
Working Paper

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