Nonlinear Dynamics and Wavelets for Business Cycle Analysis

Peter Martey Addo (1, 2, 3) , Monica Billio (1) , Dominique Guegan (2)

1 University of Ca’ Foscari [Venice, Italy]
2 CES - Centre d'économie de la Sorbonne
3 PSE - Paris School of Economics

We provide a signal modality analysis to characterize and detect nonlinearity schemes in the US Industrial Production Index time series. The analysis is achieved by using the recently proposed “delay vector variance” (DVV) method, which examines local predictability of a signal in the phase space to detect the presence of determinism and nonlinearity in a time series. Optimal embedding parameters used in the DVV analysis are obtained via a differential entropy based method using Fourier and wavelet-based surrogates. A complex Morlet wavelet is employed to detect and characterize the US business cycle. A comprehensive analysis of the feasibility of this approach is provided. Our results coincide with the business cycles peaks and troughs dates published by the National Bureau of Economic Research (NBER).

Mots clés: business cycle

Domaines: Economies et finances

Peter Martey Addo, Monica Billio, Dominique Guegan. Nonlinear Dynamics and Wavelets for Business Cycle Analysis. Wavelet Applications in Economics and Finance, 2014, 978-3-319-07060-5. ⟨10.1007/978-3-319-07061-2_4⟩. ⟨hal-01310513⟩