Recent studies suggest that US and other developed economies have become considerably stabilized in terms of volatility since the mid-1980s (Stock and Watson, 2002). This study models the structural break in volatility using a dynamic factor model with two state variables: one capturing cyclical...

Composite economic indicator is a very useful tool designed to trace and predict the business cycle conditions. This paper studies possible extensions of this approach intended to cope with the potential data problems caused by various structural breaks affecting both level and volatility of the...