Business Cycle Dating and Forecasting with Real-Time Swiss GDP Data

We develop a small-scale dynamic factor model for the Swiss economy allowing for non-linearities by means of a two-state Markov-chain. The selection of an appropriate set of indicators utilizes a combinatorial algorithm. The model's forecasting performance is as good as that of peers with richer dynamics. It proves particularly useful for a timely assessment of the business cycle stance, as the recessionary regime probabilities tend to have a leading property. The model successfully anticipated the downturn of the 2008-09 recession and promptly indicated a fall in GDP growth following the discontinuation of the exchange rate floor of the Swiss Franc