We develop a small-scale dynamic factor model for the Swiss economy allowing for nonlinearities 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 2008–2009 recession and promptly indicated a fall in GDP growth following the discontinuation of the exchange rate floor of the Swiss Franc.
CITATION STYLE
Glocker, C., & Wegmueller, P. (2020). Business cycle dating and forecasting with real-time Swiss GDP data. Empirical Economics, 58(1), 73–105. https://doi.org/10.1007/s00181-019-01666-9
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