Prediction of Business Cycle Turning Points in Germany

Abstract

Using a binary reference series based on the dating procedure of Artis, Kontolemis and Osborn (1997) different procedures for predicting turning points of the German business cycles were tested. Specifically, a probit model as proposed by Estrella and Mishkin (1997) as well as Markov-switching models were taken into consideration. The overall results indicate that the interest rate spread, the real effective exchange rate as well as some monetary indicators and some survey indicators can help to predict turning points of the German business cycle. The models were estimated for the in-sample period 1978 to 1997 and the reliability of the results was tested out of that sample (1998 to 2002).