Evaluating early warning and coincident indicators of business cycles using smooth trends

Abstract

We present a composite coincident indicator designed to capture the state of the Spanish economy. Our approach, based on smooth trends, guarantees that the resulting indicators are reasonably smooth and issue stable signals, reducing the uncertainty. The coincident indicator has been checked by comparing it with the one recently proposed by the Spanish Economic Association index. Both indexes show similar behavior and ours captures very well the beginning and end of the official recessions and expansion periods. Our coincident indicator also tracks very well alternative mass media indicators typically used in the political science literature. We also update our composite leading indicator (Bujosa, García-Ferrer, and de Juan, 2013). It systematically predicts the peaks and troughs of the new Spanish Economic Association index and provides significant aid in forecasting annual GDP growth rates. Using only real data available at the beginning of each forecast period, our indicator one step-ahead forecasts shows improvements over other individual alternatives and different forecast combinations.

Revisiting the relationship between traffic accidents, real economic activity and other factors in Spain

“…Given these attributes, these variables will be transformed into annual growth rates in the empirical implemention of annual models. (3) see Bujosa et al (2019).…”

“…A feasible way to avoid serious multicollinearity problems when using several economic inputs is to use single composite indicators representing the present and future state of the economy. In this regard, Bujosa et al (2013) and Bujosa et al (2019) have developed a Composite Leading Indicator (CLI) and a Composite Coincident Indicator (CCI) for the Spanish economy. The CCI shows a remarkable similar behavior with the index proposed by the Spanish Economic Association (AEE) and captures very well the beginning and end of the official recession and expansion periods.…”

“…The CCI shows a remarkable similar behavior with the index proposed by the Spanish Economic Association (AEE) and captures very well the beginning and end of the official recession and expansion periods. On the other hand, the CLI systematically predicts the peaks and troughs of the official index and provides significant aid in forecasting annual GDP growth rates (see Bujosa et al, 2019).…”

“…As in García-Ferrer et al (2007), we use Industrial Production Index, gasoline and diesel consumption and registration of new vehicles, since these variables are less subject to measurement errors. As a novelty in this literature, we will use the Composite Coincident Indicator (CCI) and the Composite Leading Indicator (CLI) of the economic activity developed in Bujosa et al (2013Bujosa et al ( , 2019. The importance of these indicators is twofold.…”

Estimating Cambodia’s Economic Conditions by Dynamic Factor Model

“…Levanon (2010) studied the business cycle by using Markov switching to estimate recession probability. Bujosa, Garcıa-Ferrer, Juan, and Martin-Arroyo (2018) used linear dynamic harmonic regression (LDHR) based on a spectral approach.…”