Building State-Level Business Cycle Tracer Tools: Evidence from a Large Emerging Economy

Tracing business cycle movements in a timely way can help government, firms, and consumers to allocate resources efficiently in the economy. However, analytical systems designed to monitor the business cycles are hard to find, especially in state-level economies and in emerging markets. In this paper, we present the methodology of construction of the Business Cycle Tracer of the State of Rio Grande do Sul ¨C Brazil (BCT-RS), a tool that focuses on the visualization of a key subset of financial and socioeconomic data and allows users to analyze the interrelationships and the co-movements of those variables over time. Specifically, we discuss our methodological procedure to select leading, coincident and lagging indicators, including seasonal adjustment, cycle extraction, cross-correlation analysis and detection of turning points. We also describe the three functionalities of the BCT-RS -- time series, table of variations and macroeconomic dynamics. Overall, our proposed system offers a reliable representation of the current state of the business cycle before information about GDP becomes available. Importantly, our framework is generalizable to other states, especially in developing economies.