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| Konstantin A. Kholodilin |
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| ''Two Alternative Approaches to Modelling the Nonlinear Dynamics of the Composite Economic Indicator'' |
| ( 2002, Vol. 3 No.26 ) |
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| This paper sets up a common unobserved factor model with smooth transition autoregressive dynamics. This model is compared to the already classical common factor model with regime-switching. Both models' in-sample and out-of-sample performance in terms of capturing and predicting the business cycle turning points is evaluated. The comparison of the model-derived probabilities to the NBER business cycle dating shows statistically equivalent in-sample forecasting accuracy of these techniques. The common factor model with exponential STAR outperforms the model with logistic STAR and that with Markov switching in terms of out-of-sample prediction with up to 3 month horizon. |
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| Keywords: |
JEL: C5 - Econometric Modeling: General
E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) |
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| Manuscript Received : Nov 06 2002 | | Manuscript Accepted : Nov 06 2002 |
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