Business Cycle Leading Indicators for the Tunisian Economy

This paper investigates the Tunisian business cycle with an objective of constructing an index for an early detection of the recession periods using parametric and non-parametric methods. First, several indicators are studied separately. Then, a combined approach based on the MSVAR Model of Krolzig (1997), is considered to study the adequacy of the leading composite indicator as a tool of detecting the occurrence of recessions. We find that financial variables rapidly respond to changes of economic conditions and encompass market expectations regarding future economic activity. Therefore, a revised composite indicator with the inclusion of financial variables constitutes a more reliable tool for economic authorities to be used in detecting recessions.