Working Paper: CEPR ID: DP3108
Authors: Filippo Altissimo; Antonio Bassanetti; Riccardo Cristadoro; Mario Forni; Marco Lippi; Lucrezia Reichlin; Giovanni Veronese
Abstract: This Paper is the result of the Bank of Italy-CEPR project to construct a monthly coincident indicator of the business cycle of the euro area. The index is estimated on the basis of a harmonized data set of monthly statistics of the euro area (951 series) which we constructed from a variety of sources. We use the information of this large panel to obtain an indicator which has three characteristics: (i) it provides real time information on monthly coincident activity since it is updated as new information become available in a non-synchronous way; (ii) it is cleaned from noise originated from measurement error and idiosyncratic national and sectoral dynamics; (iii) it is cleaned from seasonal and short-run dynamics through a filter that requires very little revision at the end of the sample. Unlike other methods used in the literature, the procedure takes into consideration the cross-country as well as the within-country correlation structure and exploits all information on dynamic cross-correlations. As a by product of our analysis, we provide a characterization of the commonality and dynamic relations of the series in the data set with respect to the coincident indicator and a dating of the euro area cycle.
Keywords: business cycle; dynamic factor model
JEL Codes: C51; E32; O30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| euro area business cycle indicator (F44) | cyclical behavior of the economy (E32) |
| euro area business cycle indicator (F44) | common component of GDP growth at cyclical frequencies (E20) |
| euro area business cycle indicator (F44) | real-time estimates of economic activity (E01) |
| euro area business cycle indicator (F44) | predict economic fluctuations (E37) |
| cross-sectional information (C21) | reliability of the indicator (C43) |