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Dating Business Cycle Turning Points for the French Economy: a MS-DFM approach

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Abstract

The official institutions (NBER, OECD, CEPR and others) provide business cycle chronology with a lag from 3 months up to several years. Markov-Switching Dynamic Factor Model (MS-DFM) allows to produce the turning points more timely. The Kalman filter estimates of the model can be obtained in one step with limited number of series or in two steps on a much richer dataset. While the choice of correct series is a challenge for the one-step method, the problem of the two-step method is the potential misspecification. In this paper we apply one-step and two-step approaches to the French data and compare their performance. Both methods give qualitatively similar results and prove to reproduce the OECSD business cycle chronology on the 1993-2014 monthly sample well. We find that the two-step method is more precise in determining the beginnings and the ends of recessions. Also, both methods produce extra signals corresponding to downturns which were too short to belong to OECD chronology of recessions

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  • Catherine Doz & Anna Petronevich, 2015. "Dating Business Cycle Turning Points for the French Economy: a MS-DFM approach," Documents de travail du Centre d'Economie de la Sorbonne 15009, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:15009
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    Cited by:

    1. Carstensen, Kai & Heinrich, Markus & Reif, Magnus & Wolters, Maik H., 2020. "Predicting ordinary and severe recessions with a three-state Markov-switching dynamic factor model," International Journal of Forecasting, Elsevier, vol. 36(3), pages 829-850.
    2. Antonin Aviat & Frédérique Bec & Claude Diebolt & Catherine Doz & Denis Ferrand & Laurent Ferrara & Eric Heyer & Valérie Mignon & Pierre-Alain Pionnier, 2021. "Dating business cycles in France: a reference chronology," SciencePo Working papers Main hal-03373425, HAL.
    3. Monica Billio & Anna Petronevich, 2017. "Dynamical Interaction between Financial and Business Cycles," Post-Print hal-01692239, HAL.
    4. Magnus Reif, 2020. "Macroeconomics, Nonlinearities, and the Business Cycle," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 87.
    5. Catherine Doz & Peter Fuleky, 2019. "Dynamic Factor Models," Working Papers halshs-02262202, HAL.
    6. Zhang, Wei & He, Jie & Ge, Chanyuan & Xue, Rui, 2022. "Real-time macroeconomic monitoring using mixed frequency data: Evidence from China," Economic Modelling, Elsevier, vol. 117(C).
    7. Heinrich, Markus & Carstensen, Kai & Reif, Magnus & Wolters, Maik, 2017. "Predicting Ordinary and Severe Recessions with a Three-State Markov-Switching Dynamic Factor Model. An Application to the German Business Cycle," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168206, Verein für Socialpolitik / German Economic Association.
    8. Amélie Charles & Olivier Darné, 2015. "Identifying and characterizing business and acceleration cycles of French jobseekers Identifying and characterizing business and acceleration cycles of French jobseekers," Working Papers hal-01160090, HAL.
    9. Cem Çakmakli & Hamza Dem I˙rcani & Sumru Altug, 2021. "Modelling of Economic and Financial Conditions for Real‐Time Prediction of Recessions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(3), pages 663-685, June.

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    More about this item

    Keywords

    Dynamic factor models; Markov switching models; business cycle turning points;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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