Monitoring the World Business Cycle

26 Pages Posted: 31 Mar 2015 Last revised: 15 Jul 2015

See all articles by Maximo Camacho

Maximo Camacho

Autonomous University of Barcelona - Department of Economics; Universidad de Murcia - Departamento de Metodos Cuantitativos

Jaime Martinez-Martin

Banco de España

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Date Written: March 30, 2015

Abstract

We propose a Markov-switching dynamic factor model to construct an index of global business cycle conditions, for performing short-term forecasts of quarterly world GDP growth in real time and computing real-time business cycle probabilities. To overcome the real-time forecasting challenges, the model takes into account mixed frequencies, asynchronous data publication and leading indicators. Our pseudo real-time results show that this approach provides reliable and timely inferences of quarterly world growth and of the state of the world business cycle on a monthly basis.

Keywords: real-time forecasting, world economic indicators, business cycles, non-linear dynamic factor models

JEL Classification: E32, C22, E27

Suggested Citation

Camacho, Maximo and Martinez-Martin, Jaime, Monitoring the World Business Cycle (March 30, 2015). Banco de Espana Working Paper No. 1509, Available at SSRN: https://ssrn.com/abstract=2587001 or http://dx.doi.org/10.2139/ssrn.2587001

Maximo Camacho (Contact Author)

Autonomous University of Barcelona - Department of Economics ( email )

Avda. Diagonal 690
Barcelona, 08034
Spain

Universidad de Murcia - Departamento de Metodos Cuantitativos ( email )

Campus de Espinardo
30100 Murcia
Spain
+34 968 367 982 (Phone)

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