ABSTRACT
This study examines whether indexes of consumer and business confidence are useful in predicting turning points in the United States and the United Kingdom. Turning points in coincident economic indicator series, and in the confidence indexes, are identified using a two-state Markov switching model, with time-varying transition probabilities. The predictive value of the indexes is assessed by examining whether their turning points consistently lead those in the coincident index, and whether the level of confidence significantly affects the probability that the coincident index will switch states.
