The Extent of Seasonal/Business Cycle Interactions in European Industrial Production

Recent literature has uncovered evidence that the seasonal pattern in industrial production changes over the business cycle, with seasonality being less pronounced in periods of high growth than in the low growth (or recession) business cycle phase. Matas-Mir and Osborn (2002) examine this effect using monthly data for various OECD countries, showing that the change in the seasonal pattern is typically concentrated in the summer months. The present paper extends this analysis in a specifically European context, by presenting measures of the extent of seasonal/business cycle interactions for industrial production series from European countries. The analysis is undertaken using a nonlinear threshold model that allows the overall mean and seasonal characteristics to change with the regime. The extent of seasonality in each regime is represented as the average absolute deviation of the steady state growth in each month from the overall steady state mean growth in that regime, with seasonality considered both over twelve months and over the summer months only. Seasonal/business cycle interaction is then measured in two ways, namely as the difference and the ratio of the regime- dependent seasonality, again separately for all months and for the summer. The results reinforce previous findings of reduced seasonality in higher growth periods, with the seasonal pattern being moderated by around 20 percent (both over the year and in the summer months) in some European countries.