In this article, recent research developments in the field of business cycle analysis are summarized. The main focus is on the Dynamic Factor Model with Markov switching and a couple of possible future developments are proposed. In section 2, the prototype of DFM and its estimation procedures are introduced. In section 3, assuming that patterns of business cycle movements are differ between the expansion and the contraction periods, the switch mechanism between the regimes is described by the Markov Process. The fundamental idea in this paper is that the regimes are observable which greatly simplifies the estimation of the model. In section 4, data on business sentiment is incorporated into the DFM with a view to stabilizing the resulting business cycle. In section 5, the turning point of the business cycle in 2000 is estimated using the DFM proposed in section 4. In section 6, the formulation of the switch mechanism in Japanese business cycle is statistically explored paying particular attention to : whether the first order Markov process is appropriate, whether the transition probabilities depend on other exogenous variables and whether the parameters describing the probabilities are constant regardless of time. Section 7 summarizes the above and concludes this article.
