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The Australian Business Cycle: A Coincident Indicator Approach

In: The Changing Nature of the Business Cycle


  • Christian Gillitzer

    (Reserve Bank of Australia)

  • Jonathan Kearns

    (Reserve Bank of Australia)

  • Anthony Richards

    (Reserve Bank of Australia)


This paper constructs coincident indices of Australian economic activity using techniques for estimating approximate factor models with many series, using data that begin in the early 1960s. The resulting monthly and quarterly indices both provide plausible measures of the Australian business cycle. The indices are quite robust to the selection of variables used in their construction, the sample period used in estimation, and the number of factors included. Notably, only a small number of factors is needed to adequately capture the business cycle. The coincident indices provide a much smoother representation of the cycle in economic activity than do standard national accounts measures, especially in the period prior to the early 1980s. Accordingly, they suggest that the marked decline in volatility evident in quarterly Australian GDP growth that occurred up to the 1980s may overstate the reduction in the volatility of economic activity and may at least partially reflect improvements in the measurement of GDP. Because the coincident indices present a smoother perspective of the business cycle in the 1960s and 1970s, they identify fewer recessions in this period than does GDP. Over the past 45 years, the coincident indices locate three recessions – periods when there was a widespread downturn in economic activity; in 1974–1975, 1982–1983 and 1990–1991.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Christian Gillitzer & Jonathan Kearns & Anthony Richards, 2005. "The Australian Business Cycle: A Coincident Indicator Approach," RBA Annual Conference Volume,in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
  • Handle: RePEc:rba:rbaacv:acv2005-14

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    References listed on IDEAS

    1. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
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    17. Dan Andrews & Marion Kohler, 2005. "International Business Cycle Co-movements through Time," RBA Annual Conference Volume,in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
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    Cited by:

    1. repec:col:000101:013858 is not listed on IDEAS
    2. Gerardo Alberto Villa Durán, 2014. "Un índice coincidente para Medellín," ENSAYOS SOBRE ECONOMÍA REGIONAL (ESER) 013858, BANCO DE LA REPÚBLICA - ECONOMÍA REGIONAL.
    3. Philip Liu, 2007. "Stabilizing The Australian Business Cycle: Good Luck Or Good Policy?," CAMA Working Papers 2007-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Philip Liu, 2010. "The Effects of International Shocks on Australia's Business Cycle," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 486-503, December.
    5. Philip Liu, 2008. "The Role of International Shocks in Australia’s Business Cycle," RBA Research Discussion Papers rdp2008-08, Reserve Bank of Australia.

    More about this item


    business cycle; factor models; coincident indicator; Australia;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General


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