Predicting business cycles

Abstract

In the last two decades, the Mexican economy has entered into recession on four occasions (August 1981, July 1985, December 1987, June 1994). Are these events predictable from the available statistical information? Here it is argued that yes, since it is feasible to construct a leading index that warns in advance of the imminence of a recession and also the beginning of recovery. To this end, the first section mentions the usefulness and theoretical basis of the cycle index approach in the field of forecasting; in the second section, the respective methodology is applied, for which the reference cycle is defined, the component indicators of the index are selected and chosen, the leading composite index is calculated and an ex-post forecast exercise is carried out; finally, the main conclusions are noted.