Nonlinear Autoregressive Leading Indicator Models of Output in G-7 Countries
Journal of Applied Econometrics (2007), 22 (1), pp. 63-87.
Heather M. Anderson1, George Athanasopoulos2 and Farshid Vahid1
1School of Economics, Australian National University,
ACT 0200, Australia.
2Department of Econometrics and Business Statistics, Monash University, VIC 3800, Australia.
Abstract
This paper studies linear and nonlinear autoregressive leading indicator models of business cycles in G-7 countries. Our models use the spread between short-term and long-term interest rates as leading indicators for GDP. We examine data admissibility by determining whether these models have the ability to produce time series with classical cycles that resemble the observed classical cycles in the data, and then we ask whether this data admissibility lends itself to better predictions of the probability of recession.
Keywords:Business Cycles, Leading Indicators, Nonlinear Models, Data Admissibility, Probability Predictions, Model Evaluation.