A new approach to dating and predicting Australian business cycle phase changes

Article


Layton, Allan P.. 1997. "A new approach to dating and predicting Australian business cycle phase changes ." Applied Economics. 29 (7), pp. 861-868. https://doi.org/10.1080/000368497326516
Article Title

A new approach to dating and predicting Australian business cycle phase changes

ERA Journal ID40291
Article CategoryArticle
AuthorsLayton, Allan P.
Journal TitleApplied Economics
Journal Citation29 (7), pp. 861-868
Number of Pages8
Year1997
PublisherTaylor & Francis
Place of PublicationUnited Kingdom
ISSN0003-6846
1466-4283
Digital Object Identifier (DOI)https://doi.org/10.1080/000368497326516
Web Address (URL)https://www.tandfonline.com/doi/abs/10.1080/000368497326516
Abstract

Due to well-known lags, counter-cyclical macroeconomic policies often exacerbate, rather than ameliorate, business cycles. Early recognition of upcoming phase shifts, particularly contractions, may assist in fine-tuning such policies. This objective is pursued in the paper by applying Hamilton's (1989, 1990, 1991) quasi-Bayesian, Markovian, regime-switching model to monthly growth rates of leading, long -leading and coincident indexes of Australian economic activity. A simple rule applied to regime probabilities for each data point of the coincident index produces a phase chronology that is very similar to that produced by the Bry and Boschan (1971) turning point algorithm. The regime switching model is also applied to the leading and long-leading indexes. The application of a simple rule to the resultant regime probabilities is found to result in a potentially very reliable advance signalling system for Australian business cycle phase changes.

Keywordsbusiness cycle
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Byline AffiliationsQueensland University of Technology
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