DP8896 Green Shoots and Double Dips in the Euro Area. A Real Time Measure

Author(s): Maximo Camacho, Gabriel Pérez-Quirós, Pilar Poncela
Publication Date: March 2012
Keyword(s): Business Cycles, Time Series, Turning Points
JEL(s): C22, E27, E32
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8896

To perform real-time business cycle inferences and forecasts of GDP growth rates in the Euro area, we use an extension of the Markov-switching dynamic factor models that accounts for the specificities of the day to day monitoring of economic developments such as ragged edges, mixed frequencies and data revisions. We provide examples that show the nonlinear nature of the relations between data revisions, point forecasts and forecast uncertainty. According to our empirical results, we think that the real-time probabilities of recession inferred from the model are an appropriate statistic to capture what the press call green shoots or to monitor the double-dip recession