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A Multi-Market Approach to Measuring the Cycle

Author

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  • Kenneth W Clements

    (University of Western Australia)

  • Grace Gao

    (University of Western Australia)

Abstract

At any given instance there are many indicators of the state of the economy or the state of a sector and frequently the signals are mixed – some may point to an expansion, others to a contraction, for example. We consider how best to combine this conflicting information into an overall index of economic conditions. This index plays the role of the “underlying cycle” that has the property of minimizing the distortionary impact of noise in the n individual signals. This is essentially the panel regression approach of Stock and Watson (2010). We elaborate and evaluate this rich approach, note its links to stochastic-index-number theory and suggest new interpretations, modifications and extensions. The approach is illustrated with the world prices of six important metals.

Suggested Citation

  • Kenneth W Clements & Grace Gao, 2013. "A Multi-Market Approach to Measuring the Cycle," Economics Discussion / Working Papers 13-16, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:13-16
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    References listed on IDEAS

    as
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    2. Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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