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US composite economic indicator with nonlinear dynamics and the data subject to structural breaks

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  • Konstantin Kholodilin

Abstract

Composite economic indicator is a very useful tool designed to trace and predict the business cycle conditions. This paper studies possible extensions of this approach intended to cope with the potential data problems caused by various structural breaks affecting both level and volatility of the component series. The structural shifts are introduced in the composite economic indicator model via deterministic dummies capturing breaks in the observed variables' intercepts and in the residual variances of the specific factors. As an illustration the Post-Second World War US monthly macroeconomic series are utilized for which different specifications of the single-factor linear and regime-switching model are evaluated.

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  • Konstantin Kholodilin, 2003. "US composite economic indicator with nonlinear dynamics and the data subject to structural breaks," Applied Economics Letters, Taylor & Francis Journals, vol. 10(6), pages 363-372.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:6:p:363-372
    DOI: 10.1080/1350485032000079139
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    Cited by:

    1. A. C. -L. Chian & E. L. Rempel & C. Rogers, 2007. "Crisis-induced intermittency in non-linear economic cycles," Applied Economics Letters, Taylor & Francis Journals, vol. 14(3), pages 211-218.

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