Masaki Katsuura

Comparison of regime switching, probit and logit models in dating and forecasting US business cycles

Abstract Three non-linear model specifications are tested for their efficacy in dating and forecasting US business cycles, viz. a probit specification, a logit specification — both binomial and multinomial alternatives — and a markov, regime-switching specification. The models employ leading indicators compiled by the Economic Cycle Research Institute as putative explanators. They are tested within sample to determine their relative abilities to produce a business cycle chronology similar to the official NBER chronology. They are also tested in a post-sample context to test their relative abilities in anticipating future turning points with the result that the regime-switching model with time-varying transition probabilities performs the best.

A new turning point signalling system using the Markov switching model with application to Japan, the USA and Australia

A new business cycle turning point signalling system is proposed and examined by using Japanese, US and Australian composite indexes of economic activity. Time varying transition probabilities in a Markov regime-switching model are used as the basis of the signalling system. The performance of the system is satisfactory, though its reliability varies between peaks and troughs and across countries. Based on data up until May 1998, the system suggests the absence of turning points in any of the three countries in 1998.

EXAMINING SIMILARITIES AMONG PHASES OF BUSINESS CYCLES : IS THE 1990S US EXPANSION SIMILAR TO THE 1960S'?

Statistical similarities among the latest long expansion in the U.S. and some other past expansions, in particular that of the 1960s, are examined. Corresponding to the definition of statistical similarity, a test based on the covariance matrices of business cycle component variables for the different expansions is proposed. Among available tests, the test based on partial common principal component analysis is argued to be most appropriate. The test is applied to the components of both GDP and the composite coincident index. As a result, the 1990s expansion is concluded to be statistically similar to that of the 1960s.