Working Paper

Sequential Methodology for Signaling Business Cycle Turning Points

Authors

  • Vasyl Golosnoy
  • Jens Boysen-Hogrefe
Publication Date

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.

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Info

JEL Classification
C44, C50, E32

Key Words

  • business cycle
  • CUSUM control chart
  • Dynamic Factor Markov switching models
  • Early signaling
  • NBER dating