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A new monthly index of the Texas business cycle

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  • Keith R. Phillips

Abstract

The timing, length and severity of economic recessions and expansions in a state are important to businesses seeking to set up operations or expand in those areas. Given a limited amount of data at the state level and their sometimes inconsistent movements, it is not straight forward to define a state business cycle. In this article I attempt to measure the Texas business cycle using a technique developed by Stock and Watson (1989,1991) that statistically estimates the underlying comovement in broad indicators of the state’s economy. The new Texas Coincident Index (TCI) is constructed with the Texas unemployment rate, a quarterly Real Gross State Product measure due to Berger and Phillips (1995), and a nonfarm employment series that is benchmarked quarterly and is seasonally adjusted using the two-step approach described in Berger and Phillips (1993). Use of these components and the Kalman filter, which smoothes across variables as well as over time, results in an index which is much smoother and gives clearer signals of turning points than the old TCI produced by Phillips (1988). The new TCI exhibits cyclical patterns that are highly correlated with those of employment and RGSP, and matches well with recessions and expansions that were independently identified.

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File URL: http://dallasfed.org/assets/documents/research/papers/2004/wp0401.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0401.

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Date of creation: 2004
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Handle: RePEc:fip:feddwp:04-01

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Keywords: Index numbers (Economics);

References

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  1. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  2. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
  3. Keith R. Phillips & Lucinda Vargas & Victor Zarnowitz, 1996. "New tools for analyzing the Mexican economy: indexes of coincident and leading economic indicators," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II.
  4. Franklin D. Berger & Keith R. Phillips, 1993. "Reassessing Texas employment growth," Southwest Economy, Federal Reserve Bank of Dallas, issue Jul, pages 1-3.
  5. Mine K. Yücel & John Thompson, 2002. "Texas economy stalled by recession," Southwest Economy, Federal Reserve Bank of Dallas, issue Nov, pages 1 - 8.
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Cited by:
  1. repec:ebl:ecbull:v:3:y:2007:i:46:p:1-12 is not listed on IDEAS
  2. Donatella Baiardi & Carluccio Bianchi, 2012. "Un Indicatore per la Lombardia e per le Province di Milano e Pavia (Nuova versione)," Quaderni di Dipartimento 158, University of Pavia, Department of Economics and Quantitative Methods.
  3. Albu, Lucian Liviu, 2008. "A Model to Estimate the Composite Index of Economic Activity in Romania – IEF-RO," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 44-50, June.
  4. Lucian-Liviu Albu & Vasile Dinu, 2009. "How Deep and How Long Could Be the Recession in Romania," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(Number Sp), pages 675-683, November.

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