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Co-movement of Cyclical Components Approach to Construct a Coincident Index of Business Cycles

Author

Listed:
  • Koki Kyo

    (Niigata University of Management)

  • Hideo Noda

    (Tokyo University of Science)

  • Genshiro Kitagawa

    (University of Tokyo
    Meiji University)

Abstract

The accurate assessment of business conditions is a long-standing problem in macroeconomics. To construct a coincident index of growth cycles from a given set of indicators, we propose a new approach: the co-movement of cyclical components (triple-C) approach. For realizing the triple-C approach, we introduce a multi-objective optimization algorithm. We refer to the coincident index of growth cycles as the index of business cycles (IBC) of coincident economic indicators. The IBC based on the triple-C approach has the following properties: (1) its mean is globally stationary; (2) it is constructed as a common factor in the stationary parts of the selected economic indicators; and (3) its variations are as large as possible so that it contains a relatively large amount of information for business cycle analysis. We examine the performance of the constructed IBC by comparing it with a composite index based on data for coincident indicators in Japan.

Suggested Citation

  • Koki Kyo & Hideo Noda & Genshiro Kitagawa, 2022. "Co-movement of Cyclical Components Approach to Construct a Coincident Index of Business Cycles," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 18(1), pages 101-127, March.
    • Handle: RePEc:spr:jbuscr:v:18:y:2022:i:1:d:10.1007_s41549-022-00067-9
    DOI: 10.1007/s41549-022-00067-9
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    More about this item

    Keywords

    Business cycle index; State space model; Growth cycles; Composite index; Co-movement of cyclical components; Decomposition of time series;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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