Predicting U.S. Business-Cycle Regimes

Capital requirements and business cycle regimes: Forward-looking modelling of default probabilities

“…Filardo, 1994), treats the regimes as unobserved, a more recent strand of literature models them by an observed binary variable within a binary choice model: this is an advantage if reliable historical data on business cycle chronology are available. Pioneering works in this area are Estrella and Hardouvelis (1991), Estrella and Mishkin (1998) and Birchenhall et al (1999). In particular, the latter also provides an empirical comparison of a logit model and the regime-switching models by Hamilton (1989) and Filardo (1994) and finds that the logit model has a better predictive performance: this supports the choice made in the present paper.…”

“…Moreover, a logit model (as used e.g. in Birchenhall et al, 1999) was estimated on the same data set with similar results. 16 The NBER turning points are available on the website: www.nber.org.…”

Predicting UK Business Cycle Regimes

“…The Hamilton model is, however, relatively uninteresting from a regime prediction viewpoint because it assumes the regime-switching probabilities are constant over time. Although Filardo (1994) has generalised the approach to permit the regime-switching probabilities to be functions of one or more leading indicators, Birchenhall, Jessen, Osborn and Simpson (1999), hitherto referred to as BJOS, find that US business cycle regimes are better predicted when the leading indicator information is used in the context of a logistic regression model. Thus, while modelling the regime implies a loss of information in comparison with the modelling of observations on GDP growth, it appears that the former yields better predictions when the regime itself is the focus of interest.…”

The missing link: using the NBER recession indicator to construct coincident and leading indices of economic activity

“…Other related studies in the business cycle literature are Birchenhall et al (1999), who propose a logistic rule to classify the states of the economy, Zellner and Min (1999), who emphasize the role of leading indicators in the prediction of turning points, and Watson (1994), who examines basic business cycle statistics of pre and post war U.S.…”