The Prediction of Business Cycle Phases: Financial Variables and International Linkages

This paper discusses recent research at the Centre for Growth and Business Cycle Research on the prediction of the expansion and recession phases of the business cycle for the UK, US, Germany, France and Italy. Financial variables are important predictors in these models, with the stock market playing a key role in the US but not the European countries, including the UK. In contrast, international linkages are important for the European countries. Our models suggest that the US and German economy have now emerged from the recession of 2001, and that all five countries will be in expansion during the third quarter of this year.