A comparison of two business cycle dating methods

22-Jul-2016 07:59

While most papers dealing with business cycle dates rely on one specific method, I present and discuss a number of different dating approaches based on the classical business cycle.

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Dividing the sample period into a subset for model initialization (1959∶9–1970∶12) and a subset for testing (1971∶1–2003∶12) yields a chronology that is nearly identical to that established by the National Bureau of Economic Research (NBER).Finally, based on the results of the different methods, a consensus business cycle chronology for the German economy is suggested.I gratefully acknowledge comments and suggestions from Klaus Wälde and two anonymous referees.The R word has begun to appear in the media again bringing with it three technical questions viz, How will we know we are in recession? Second, for the classical and acceleration cycles it is possible to obtain a reasonably simple approximation to the BBQ algorithm that may permit one to write down a likelihood function. Osborn (1997), "Business Cycles for G7 and European Countries". This paper does not provide answers to these questions rather it focuses on the technical issues that we need to resolve in order to provide good answers to these questions. First, the business cycle states obtained by the BBQ algorithm are complex statistical processes and it is not possible to write down an exact likelihood function for them.

Dividing the sample period into a subset for model initialization (1959∶9–1970∶12) and a subset for testing (1971∶1–2003∶12) yields a chronology that is nearly identical to that established by the National Bureau of Economic Research (NBER).

Finally, based on the results of the different methods, a consensus business cycle chronology for the German economy is suggested.

I gratefully acknowledge comments and suggestions from Klaus Wälde and two anonymous referees.

The R word has begun to appear in the media again bringing with it three technical questions viz, How will we know we are in recession? Second, for the classical and acceleration cycles it is possible to obtain a reasonably simple approximation to the BBQ algorithm that may permit one to write down a likelihood function. Osborn (1997), "Business Cycles for G7 and European Countries".

This paper does not provide answers to these questions rather it focuses on the technical issues that we need to resolve in order to provide good answers to these questions. First, the business cycle states obtained by the BBQ algorithm are complex statistical processes and it is not possible to write down an exact likelihood function for them.

However, the recognition lag is less than four months, in contrast to an average of more than eleven months for the official chronology.