Veranstaltung
03
Jul 2017

14:15 - 15:45
IWH Research Seminar

Predicting Ordinary and Severe Recessions with a Three-state Markov-Switching Dynamic Factor Model. An Application to the German Business Cycle

We estimate a Markow-switching dynamic factor model with three states based on six leading business cycle indicators for Germany preselected from a broader set using the Elastic Net softthresholding rule.

Who
Maik Wolters  (Friedrich Schiller University Jena)
Where
IWH conference room
Maik Wolters

Personal details

Maik Wolters is Professor of Macroeconomics at the Friedrich Schiller University Jena.

We estimate a Markow-switching dynamic factor model with three states based on six leading business cycle indicators for Germany preselected from a broader set using the Elastic Net softthresholding rule. The three states represent expansions, normal recessions and severe recessions. We show that a two-state model is not sensitive enough to reliably detect relatively mild recessions when the Great Recession of 2008/2009 is included in the sample. Adding a third state helps to clearly distinguish normal and severe recessions, so that the model identifies reliably all business cycle turning points in our sample. (read more)

Ansprechpartner

Felix Pohle
Felix Pohle
Economist

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