Confidence Indexes and the Probability of Recession: A Markov Switching Model
Indian Economic Review, Vol. 36, No. 1
Posted: 6 Nov 2002
Abstract
This paper uses a time-varying parameter Markov switching model to measure linkages between business confidence, consumer confidence, and the state of the economy in the US and the UK. Falling business confidence significantly increases the probability that growth will subsequently fall. Rising consumer confidence significantly increases the probability of recovery. But these relationships do not yield a reliable method for anticipating business cycle turning points.
Keywords: Markov Switching, Consumer confidence, bubsiness confidence, turning point prediction
JEL Classification: E32, E37
Suggested Citation: Suggested Citation
Batchelor, Roy, Confidence Indexes and the Probability of Recession: A Markov Switching Model. Indian Economic Review, Vol. 36, No. 1, Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=329483
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