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A real time coincident indicator of the euro area business cycle

Filippo Altissimo (), Antonio Bassanetti (), Riccardo Cristadoro (), Mario Forni (), Marco Lippi (), Lucrezia Reichlin () and Giovanni Veronese
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Filippo Altissimo: Bank of Italy, Economic Research Department and CEPR
Antonio Bassanetti: Bank of Italy, Economic Research Department

No 436, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper is the result of the Bank of Italy-CEPR project to construct a monthly coincident indicator of the business cycle of the euro area. The index is estimated on the basis of a harmonized data set of monthly statistics of the euro area (951 series) which we constructed from a variety of sources. We use the information of this large panel to obtain an indicator which has three characteristics: (i) it provides real time information on monthly coincident activity since it is updated as new information become available in a non-synchronous way; (ii) it is cleaned from noise originated from measurement error and idiosyncratic national and sectoral dynamics; (iii) it is cleaned from seasonal and short-run dynamics through a �lter that requires very little revision at the end of the sample. Unlike other methods used in the literature, the procedure takes into consideration the cross-country as well as the within-country correlation structure and exploits all information on dynamic cross-correlations. As a byproduct of our analysis, we provide a characterization of the commonality and dynamic relations of the series in the data set with respect to the coincident indicator and a dating of the euro area cycle.

Keywords: business cycle; dynamic factor model (search for similar items in EconPapers)
JEL-codes: C51 E32 O30 (search for similar items in EconPapers)
Date: 2001-12
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