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Which Indicators Matter? Analyzing the Swiss Business Cycle Using a Large-Scale Mixed-Frequency Dynamic Factor Model

Alain Galli ()

Journal of Business Cycle Research, 2018, vol. 14, issue 2, 179-218

Abstract: Abstract For policy institutions such as central banks, it is important to have a timely and accurate measure of past and current economic activity and the business cycle situation. The most prominent example for such a measure is gross domestic product (GDP). However, GDP is only released at a quarterly frequency and with a substantial delay. Furthermore, it captures elements that are not directly linked to the business cycle and the underlying momentum of the economy. In this paper, I construct a new business cycle index for the Swiss economy, which uses state-of-the-art methods, is available at a monthly frequency and can be calculated in real-time, even when some indicators are not yet available for the most recent periods. The index is based on a large and broad set of monthly and quarterly indicators. As I show, for the case of Switzerland, it is important to base a business cycle index on a broad set of indicators instead of only a small subset. This result confirms the findings of a previous study on tracking short-term economic developments in Switzerland and is in contrast with the results for other countries.

Keywords: Business cycle index; Dynamic factor model; Mixed frequency; Switzerland (search for similar items in EconPapers)
JEL-codes: C32 C38 C53 C55 E32 (search for similar items in EconPapers)
Date: 2018
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