Working Paper: CEPR ID: DP3696
Authors: Michael J. Artis; Massimiliano Marcellino; Tommaso Proietti
Abstract: In this Paper we compare alternative approaches for dating the euro area business cycle and analysing its characteristics. First, we extend a commonly used dating procedure to allow for length, size and amplitude restrictions, and to compute the probability of a phase change. Second, we apply the modified algorithm for dating both the classical euro area cycle and the deviation cycle, where the latter is obtained by a variety of methods, including a modified HP filter that reproduces the features of the BK filter but avoids end-point problems, and a production function based approach. Third, we repeat the dating exercise for the main euro area countries, evaluate the degree of synchronization, and compare the results with the UK and the US. Fourth, we construct indices of business cycle diffusion, and assess how widespread are cyclical movements throughout the economy. Finally we repeat the dating exercise using monthly industrial production data, to evaluate whether the higher sampling frequency can compensate the higher variability of the series and produce a more accurate dating.
Keywords: business cycle; cycle dating; cycle synchronization; euro area
JEL Codes: E32; E34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| modified dating algorithm (C69) | accurate representation of the business cycle (E32) |
| amplitude restrictions (Y20) | accurate representation of the business cycle (E32) |
| detrending methods (C22) | dating of turning points (C41) |
| synchronization of business cycles across euro area countries (F44) | higher cross-concordance (Y80) |
| cyclical movements (E32) | spread throughout the economy (F69) |
| investment and industrial production (E22) | cyclically sensitive (E32) |