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Months for cyclical dominance and the Ifo Business Climate

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  • Klaus Abberger
  • Wolfgang Nierhaus

Abstract

Business-cycle indicators should signal the cyclical developments in economic activity reliably and in a timely fashion. Important indicators for the analysis of German economic activity are, for example, the Ifo Business Climate, Industrial production and incoming orders in manufacturing. However, in all economic activity indicators the business-cycle signal they contain is always accompanied by unsystematic noise or an "interfering signal". For this reason an important quality criterion for economic activity indicators is the relationship contained in the time series between business cycle signal and interfering signal. This article presents two important measurement criteria - the IC relation (ratio of the average amplitudes of the irregular to the cyclical factor) and MCD measure (months for cyclical dominance) that builds on this; with these seasonally adjusted time series can be analysed with regard to the order of magnitude of irregular components to smooth business-cycle components. Then an examination is made of the quality of the Ifo Business Climate and its components in comparison with important indicators of the official statistics with regard to the two criteria mentioned above. The presented results show that both the business climate for manufacturing as well as the business climate for industry and trade perform very well in terms of the MCD criterion. The Ifo Business Climate is thus a monthly business cycle indicator which is very timely, gives early signals for business activity and in addition contains a very clear, i.e., cyclically significant, economic activity signal. For this reason the Ifo Business Climate is rightly regarded as a key indicator for the appraisals of the business trend in Germany.

Suggested Citation

  • Klaus Abberger & Wolfgang Nierhaus, 2009. "Months for cyclical dominance and the Ifo Business Climate," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 62(07), pages 11-19, April.
    • Handle: RePEc:ces:ifosdt:v:62:y:2009:i:07:p:11-19
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    References listed on IDEAS

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    1. Julius Shiskin, 1957. "Electronic Computers and Business Indicators," NBER Books, National Bureau of Economic Research, Inc, number juli57-1, March.
    2. Geoffrey H. Moore & Julius Shiskin, 1967. "Indicators of Business Expansions and Contractions," NBER Books, National Bureau of Economic Research, Inc, number moor67-2, March.
    3. Klaus Abberger & Wolfgang Nierhaus, 2007. "The Ifo Business Climate: A reliable leading indicator," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 60(05), pages 25-30, March.
    4. Klaus Abberger & Klaus Wohlrabe, 2006. "Forecasting qualities of the Ifo Business Climate Index - a look at recent studies," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 59(22), pages 19-26, November.
    5. Kirchner, Robert, 1999. "Auswirkungen des neuen Saisonbereinigungsverfahrens Census X-12-ARIMA auf die aktuelle Wirtschaftsanalyse in Deutschland," Discussion Paper Series 1: Economic Studies 1999,07, Deutsche Bundesbank.
    6. Klaus Abberger & Wolfgang Nierhaus, 2008. "Ifo capacity utilisation – a coincident indicator for business activity in German manufacturing," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 61(16), pages 15-23, August.
    7. Julius Shiskin, 1957. "Electronic Computers and Business Indicators," The Journal of Business, University of Chicago Press, vol. 30, pages 219-219.
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    Citations

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    Cited by:

    1. Klaus Abberger & Wolfgang Nierhaus, 2010. "The Ifo Business Cycle Clock: Circular Correlation with the Real GDP," CESifo Working Paper Series 3179, CESifo.
    2. Klaus Abberger & Michael Graff & Boriss Siliverstovs & Jan-Egbert Sturm, 2014. "The KOF Economic Barometer, Version 2014," KOF Working papers 14-353, KOF Swiss Economic Institute, ETH Zurich.
    3. Klaus Abberger & Wolfgang Nierhaus, 2010. "Markov-Switching and the Ifo Business Climate: the Ifo Business Cycle Traffic Lights," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2010(2), pages 1-13.
    4. Christian Seiler & Klaus Wohlrabe, 2013. "The Ifo Business Climate and the German Economy," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(18), pages 17-21, October.
    5. Werner Hölzl & Gerhard Schwarz, 2014. "Der WIFO-Konjunkturtest: Methodik und Prognoseeigenschaften," WIFO Monatsberichte (monthly reports), WIFO, vol. 87(12), pages 835-850, December.
    6. Wolfgang Nierhaus, 2014. "Seasonal Adjustment in Business Cycle Analysis: a Case Study," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(21), pages 35-39, November.
    7. Klaus Abberger & Wolfgang Nierhaus, 2017. "Testing the Ifo Business Cycle Clock," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(04), pages 24-30, February.
    8. Klaus Abberger & Wolfgang Nierhaus, 2010. "The Ifo Business Cycle Clock: circular correlation with GDP," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(05), pages 32-43, March.
    9. Stefan Sauer & Klaus Wohlrabe, 2015. "Seasonal Adjustment in the Ifo Business Survey – Conversion to the X-13ARIMA-SEATS Procedure," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(01), pages 32-42, January.
    10. Wolfgang Nierhaus & Timo Wollmershäuser, 2016. "ifo Konjunkturumfragen und Konjunkturanalyse: Band II," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 72.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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