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.
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Acknowledgements
The authors gratefully acknowledge the anonymous reviewers for their constructive comments and suggestions, which have made this article more valuable and readable. This work was supported in part by a Grant-in-Aid for Scientific Research (B) (18H03210) and a Grant-in-Aid for Scientific Research (C) (19K01583) from the Japan Society for the Promotion of Science. We thank Maxine Garcia, PhD, from Edanz (https://jp.edanz.com/ac) for editing a draft of this manuscript. We would like to thank also the anonymous reviewers for their constructive comments and advice.
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Kyo, K., Noda, H. & Kitagawa, G. Co-movement of Cyclical Components Approach to Construct a Coincident Index of Business Cycles. J Bus Cycle Res 18, 101–127 (2022). https://doi.org/10.1007/s41549-022-00067-9
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DOI: https://doi.org/10.1007/s41549-022-00067-9
Keywords
- Business cycle index
- State space model
- Growth cycles
- Composite index
- Co-movement of cyclical components
- Decomposition of time series