Friday, December 14, 2012

2012.12.14 Monthly DJIA Cycle Charts

I have been slowly rebuilding the cycle models, which are now less complex as a result of the input data pruning. As promised, here is the new cycle model for the DJIA.  One of the cycle model inputs, a cyclical model of its own relating the yield curve spread and rate of change of US monetary aggregates is worse than useless and was contributing to the increasing error. I have also dropped all inputs regarding employment data from the US BLS. The increasing second-degree fluctuation of their short-term variance convinced me that the set of data I was using contained more noise than information. The academic question is now not whether  Fed interventions can change business cycle amplitude and phase, but by how much and over what time window. Right now, it looks like the long-term cycles with a period > 8 years are stable since 1896, and it is the noise in the shorter cycles that created the error in the previous model version beginning around early 2010.   So according to the model, we might have topped out on the DJIA.

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