Calling recessions in real time

This paper surveys efforts to automate the dating of business cycle turning points. Doing this on a real time, out-of-sample basis is a bigger challenge than many academics might assume, due to factors such as data revisions and changes in economic relationships over time. The paper stresses the value of both simulated real-time analysis — looking at what the inference of a proposed model would have been using data as they were actually released at the time — and actual real-time analysis, in which a researcher stakes his or her reputation on publicly using the model to generate out-of-sample, real-time predictions. The immediate publication capabilities of the internet make the latter a realistic option for researchers today, and many are taking advantage of it. The paper reviews a number of approaches to dating business cycle turning points and emphasizes the fundamental trade-off between parsimony — trying to keep the model as simple and robust as possible — and making full use of the available information. Different approaches have different advantages, and the paper concludes that there may be gains from combining the best features of several different approaches.