Identifying Business Cycle Turning Points in Real Time

FRB of Atlanta Working Paper No. 2002-27

35 Pages Posted: 19 Feb 2003

See all articles by Marcelle Chauvet

Marcelle Chauvet

University of California Riverside

Jeremy Piger

University of Oregon - Department of Economics

Date Written: December 2002


This paper evaluates the ability of a statistical regime-switching model to identify turning points in U.S. economic activity in real time. The authors work with Markov-switching models of real GDP and employment that, when estimated on the entire post-war sample, provide a chronology of business cycle peak and trough dates very close to that produced by the National Bureau of Economic Research (NBER). Next, they investigate how accurately and quickly the models would have identified turning points had they been used in real-time for the past forty years. In general, the models identify turning point dates in real-time that are close to the NBER dates. For both business cycle peaks and troughs, the models provide systematic improvement over the NBER in the speed at which turning points are identified. Importantly, the models achieve this with few instances of "false positives." Overall, the evidence suggests that the regime-switching model could be a useful supplement to the NBER Business Cycle Dating Committee for establishing turning point dates. The model appears to capture the features of the NBER chronology in an accurate, timely way, and does so in a transparent and consistent fashion.

Keywords: Business cycles, real time forecasting, Markov switching, turning points

JEL Classification: C32, C50, E3

Suggested Citation

Chauvet, Marcelle and Piger, Jeremy M., Identifying Business Cycle Turning Points in Real Time (December 2002). FRB of Atlanta Working Paper No. 2002-27. Available at SSRN: or

Marcelle Chauvet (Contact Author)

University of California Riverside ( email )

900 University Avenue
4136 Sproul Hall
Riverside, CA 92521
United States
(951) 827-1587 (Phone)

HOME PAGE: http://

Jeremy M. Piger

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

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