The Australian Business Cycle: A Coincident Indicator Approach
In: The Changing Nature of the Business Cycle
AbstractThis paper constructs coincident indices of Australian economic activity using techniques for estimating approximate factor models with many series, using data that begin in the early 1960s. The resulting monthly and quarterly indices both provide plausible measures of the Australian business cycle. The indices are quite robust to the selection of variables used in their construction, the sample period used in estimation, and the number of factors included. Notably, only a small number of factors is needed to adequately capture the business cycle. The coincident indices provide a much smoother representation of the cycle in economic activity than do standard national accounts measures, especially in the period prior to the early 1980s. Accordingly, they suggest that the marked decline in volatility evident in quarterly Australian GDP growth that occurred up to the 1980s may overstate the reduction in the volatility of economic activity and may at least partially reflect improvements in the measurement of GDP. Because the coincident indices present a smoother perspective of the business cycle in the 1960s and 1970s, they identify fewer recessions in this period than does GDP. Over the past 45 years, the coincident indices locate three recessions â periods when there was a widespread downturn in economic activity; in 1974â1975, 1982â1983 and 1990â1991.
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This chapter was published in: Christopher Kent & David Norman (ed.) The Changing Nature of the Business Cycle, Reserve Bank of Australia, pages , 2005.
This item is provided by Reserve Bank of Australia in its series RBA Annual Conference Volume with number acv2005-14.
Other versions of this item:
- Christian Gillitzer & Jonathan Kearns & Anthony Richards, 2005. "The Australian Business Cycle: A Coincident Indicator Approach," RBA Research Discussion Papers rdp2005-07, Reserve Bank of Australia.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
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- Philip Liu, 2007. "Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?," CAMA Working Papers 2007-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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