A new turning point signalling system using the Markov switching model with application to Japan, the USA and Australia

A new business cycle turning point signalling system is proposed and examin ed by using Japanese, US and Australian composite indexes of economic activ ity. Time varying transition probabilities in a Markov regime-switching mod el are used as the basis of the signalling system. The performance of the s ystem is satisfactory, though its reliability varies between peaks and trou ghs and across countries. Based on data up until May 1998, the system sugge sts the absence of turning points in any of the three countries in 1998.