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Dating the euro area business cycle: an evaluation

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  • Claudia Pacella

    (Bank of Italy)

Abstract

In this paper we study the business cycle dating formulated by the CEPR committee for the euro area. We first compare recessions as defined by the CEPR to those obtained using alternative methodologies (e.g. Bry-Boschan algorithm) and we find that the CEPR dating is not fully in line with other dating rules that are based only on GDP dynamics, thus confirming that the committee considers a broader set of variables. We then evaluate the classification of economic activity in recessions and expansions; the underlying business cycle is either based on a single variable or estimated as a latent factor that captures the comovements of several macroeconomic series. We find that the CEPR chronology is more consistent with the estimated common factor than with what is implied by methods solely based on GDP. Finally, we analyze which real variables drive the classification of economic activity by the CEPR and we find that the properties of the CEPR chronology are mainly related to the dynamics of demand components, especially final consumption, and employment.

Suggested Citation

  • Claudia Pacella, 2021. "Dating the euro area business cycle: an evaluation," Temi di discussione (Economic working papers) 1332, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1332_21
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2021/2021-1332/en_tema_1332.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    business fluctuations; cycle; factor models;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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