Monitoring Business Cycle Fluctuations in Asia

Madhavi Pundit, Arief Ramayandi (aramayandi@adbi.org), Patrick Jaime Simba (psimba.consultant@adb.org), Dennis Sorino (dsorino@adb.org) and Sharyl Rose Tan (srsy.consultant@adb.org)
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Arief Ramayandi: Asian Development Bank Institute
Patrick Jaime Simba: Asian Development Bank
Dennis Sorino: Asian Development Bank
Sharyl Rose Tan: Asian Development Bank

No 766, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Timely updates of business cycle fluctuations—commonly represented by movements in the output gap—help policymakers make informed decisions on the appropriate course of action. Unfortunately, business cycle assessments often suffer from lags in actual gross domestic product data releases. This paper proposes the use of an Economic Activity Index, developed to monitor monthly business cycle fluctuations in Asia. The index summarizes a selection of updated monthly economic indicators to gauge movements in the output gap. The paper shows that the application of machine learning models substantially improves the ability of the index to track actual fluctuations of the business cycle compared with models constructed using a traditional principal component analysis. Grouping the information used to construct the index into six categories—consumption, investment, trade, government, financial, and the external sector— makes it possible to break down and explain drivers of movements in the business cycle.

Keywords: macroeconomic monitoring; tracking business cycles; economic fluctuations; nowcasting (search for similar items in EconPapers)
JEL-codes: C32 C63 E32 E37 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-01-31
New Economics Papers: this item is included in nep-big, nep-mac and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0766

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