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Discussion or working paper
Vasyl Golosnoy ,
Jens Boysen-Hogrefe

Sequential Methodology for Signaling Business Cycle Turning Points

  • Abstract
    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.

  • Keywords

    Business cycle; CUSUM control chart; Dynamic Factor Markov switching models; Early signaling; NBER dating

  • JEL classification

    C44, C50, E32

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