This paper employs Hamilton’s (1989) original Markov-switching model and the time-varying Markov-switching model developed by Filardo (1994), respectively, to investigate the business cycle and evaluate the usefulness of the coincident and leading indexes in dating the business cycle and in predicting future GDP in Taiwan. The empirical results suggest that these two indexes help date the business cycle in Taiwan and improve precision in predicting turning points. As for forecasting future GDP, the coincident index is useful whereas the leading index is not.