Dating the financial cycle with uncertainty estimates: a wavelet proposition

We propose to date and analyze the financial cycle using the Maximum Overlap Discrete Wavelet Transform (MODWT). Our presentation points out limitations of the methods derived from the classical business cycle literature, while stressing their connection with wavelet analysis. The fundamental time-frequency uncertainty principle imposes replacing point estimates of turning points by interval estimates, which are themselves function of the scale of the analysis. We use financial time series from 19 OECD countries to illustrate the applicability of the tool.