Business Cycle Dating and Forecasting with Real-Time Swiss GDP Data
WIFO Working Papers No. 542, 2019
39 Pages Posted: 27 Feb 2019 Last revised: 8 May 2019
Date Written: January 18, 2019
We develop a small-scale dynamic factor model for the Swiss economy allowing for non-linearities by means of a two-state Markov-chain. The selection of an appropriate set of indicators utilizes a combinatorial algorithm. The model’s forecasting performance is as good as that of peers with richer dynamics. It proves particularly useful for a timely assessment of the business cycle stance, as the recessionary regime probabilities tend to have a leading property. The model successfully anticipated the downturn of the 2008-09 recession and promptly indicated a fall in GDP growth following the discontinuation of the exchange rate floor of the Swiss Franc.
Keywords: Dynamic Factor Model, Nowcasting, Real-Time Data, Markov-Switching, Business Cycle Dating
JEL Classification: C32, C53, E37
Suggested Citation: Suggested Citation