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A note on the diffusion of business cycles

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  • Guerrero Santiago
  • Martínez-Ovando Juan Carlos

Abstract

For over five decades, diffusion indexes have been widely used by statistical and economic agencies as an instrument to summarize the dynamics of a group of disaggregated time-series economic data. In this note we revise the methods for constructing diffusion indexes, propose a novel generalized diffusion index and apply it to the U.S. State Coincident Indexes published by the Federal Reserve Bank of Philadelphia. We show that the proposed index is more informative and conclusive regarding the stage of the aggregate business cycle than the traditional indexes used by some statistical agencies. Moreover, one of the unique properties of the generalized diffusion index is that it allows a consistent reading of the contributions of its constituent units.

Suggested Citation

  • Guerrero Santiago & Martínez-Ovando Juan Carlos, 2015. "A note on the diffusion of business cycles," Working Papers 2015-01, Banco de México.
    • Handle: RePEc:bdm:wpaper:2015-01
    as

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    References listed on IDEAS

    as
    1. Geoffrey H. Moore, 1961. "Sources and Descriptions: Diffusion Indexes," NBER Chapters, in: Business Cycle Indicators, Volume 2, Basic Data on Cyclical Indicators, pages 65-70, National Bureau of Economic Research, Inc.
    2. Geoffrey H. Moore, 1961. "Business Cycle Indicators, Volume 1," NBER Books, National Bureau of Economic Research, Inc, number moor61-1, March.
    3. Geoffrey H. Moore, 1961. "Introductory pages to "Business Cycle Indicators, Volume 1"," NBER Chapters, in: Business Cycle Indicators, Volume 1, pages -35--15, National Bureau of Economic Research, Inc.
    4. Geoffrey H. Moore, 1961. "Diffusion Indexes, Rates of Change, and Forecasting," NBER Chapters, in: Business Cycle Indicators, Volume 1, pages 282-293, National Bureau of Economic Research, Inc.
    5. Guerrero Santiago & Martínez-Ovando Juan Carlos, 2014. "Generalized Diffusion Indexes of Mexican State and Sectorial Economic Activity," Working Papers 2014-16, Banco de México.
    6. Theodore M. Crone & Alan Clayton-Matthews, 2005. "Consistent Economic Indexes for the 50 States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 593-603, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Diffusion indexes; coincident indexes; business cycles; monitoring;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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