Co-movement of Cyclical Components Approach to Construct a Coincident Index of Business Cycles

Koki Kyo, Hideo Noda () and Genshiro Kitagawa
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Koki Kyo: Niigata University of Management
Hideo Noda: Tokyo University of Science
Genshiro Kitagawa: University of Tokyo

Journal of Business Cycle Research, 2022, vol. 18, issue 1, No 4, 127 pages

Abstract: Abstract The accurate assessment of business conditions is a long-standing problem in macroeconomics. To construct a coincident index of growth cycles from a given set of indicators, we propose a new approach: the co-movement of cyclical components (triple-C) approach. For realizing the triple-C approach, we introduce a multi-objective optimization algorithm. We refer to the coincident index of growth cycles as the index of business cycles (IBC) of coincident economic indicators. The IBC based on the triple-C approach has the following properties: (1) its mean is globally stationary; (2) it is constructed as a common factor in the stationary parts of the selected economic indicators; and (3) its variations are as large as possible so that it contains a relatively large amount of information for business cycle analysis. We examine the performance of the constructed IBC by comparing it with a composite index based on data for coincident indicators in Japan.

Keywords: Business cycle index; State space model; Growth cycles; Composite index; Co-movement of cyclical components; Decomposition of time series (search for similar items in EconPapers)
JEL-codes: C11 C18 E32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s41549-022-00067-9

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