Clusters of cyclical turning points in the coincident indicators help us identify and date euro area recessions and recoveries in the past several decades. In the USA and some other countries, composite indexes of coincident indicators (CEI) are used to date classical business cycle turning points, also indexes of leading indicators (LEI) are used to help in the difficult task of predicting these turning points. This paper reviews a selection of the available data for monthly and quarterly euro area coincident and leading indicators. From these data, we develop composite indexes using methods analogous to those tested in the US CEI and LEI published by The Conference Board. We compare the resulting business cycle chronology with the existing alternatives and evaluate our selection of leading indicators in the context of how well they predict current economic activity and its major fluctuations for the euro area. Copyright (C) 2009 John Wiley & Sons. Ltd

This paper reviews some of China's high-frequency economic indicators and our principal findings on their selection and use. Our aim is to develop a composite index of coincident economic indicators (coincident economic index, CEI) which can be used to obtain timely information on the present state of the China's economy and provide an appropriate measure to analyze China's short-term macroeconomic dynamics. Notably, combining industrial production, retail sales, manufacturing employment, income of financial institutions and passenger traffic volume, they work well as the method for dating business cycles for China. It shows that, over the past two decades, there was one marked recession which occurred in 1988: 8 to 1989: 12. In addition to this business cycle chronology we also develop a growth cycle chronology based on the deviations from trend of the CE which shows that there have been four cyclical slowdowns since 1986. Whereas GDP growth lacks cyclical movements and appears to be dominated by trend and irregular movements, in contrast to GDP, the CEI works well as a measure of cyclical dynamics and can contribute to the analysis of short-term fluctuations of Chinese economic activity relative to its long-term growth.

Countries and periods that benefit from higher economic growth trends are likely to enjoy additional gains from more moderate business cycles; with less frequent and/or milder recessions. Correspondingly, where and when growth gets to be disappointingly low, business cycles are likely to get less moderate, with recessions becoming more frequent and/or more severe. This association may have its source in changes in either the longer growth trends or intermediate cyclical movements. This paper illustrates this broad relationship with two examples from the recent economic history of Japan and the United States. The Japanese case is a dramatic shift from high growth and cyclical stability to stagnation and a succession of booms and busts. The U.S. case, while more moderate, shows similar trend/cycle interactions. The last part of the paper sums up the necessary qualifications and conclusions. It addresses the changes over time in how people perceive the cycle-to-trend (and vice versa) connections, and how the economy reacts to the shocks and imbalances that may cause cyclical fluctuations.

of the seven troughs with very short lead times1. The business cycle turns had dates identified by the National Bureau of Economic Research (NBER), a well-known independent private organization. They are based on the consensus of cyclical peaks and troughs in the principal coincident indicators - monthly comprehensive measures of national employment, production, real income and real demand or sales. The same series also serve as components of the composite index of coincident indicators (CEI), which is now regularly compiled and published by TCB. The median leads of LEI at peaks (recessions) and troughs (recoveries) were eleven and seven months (-11 and -7) respectively. For CEI, the corresponding measures were -1 and 0. For real GDP, they were +0.5 and -0.5, all in months. LEI missed no turns in either CEI or GDP. The last two series moved and turned together throughout. The excellent record of the TCB leading index in anticipating U.S. recessions and recoveries of the last half-century has not gone unnoticed by analysts and forecasters of economic growth and fluctuations generally. Paul L. Kasriel, director of economic research at the Northern Trust, provides a good example of a practicing analyst/forecaster who knows that success in this field is rare and worthy of active appreciation2. He believes that the weakness of the LEI in 2006 was serious enough to prompt fears of an outright U.S. recession in the near future. The ex-post record of the LEI has indeed been very good as documented numerous times in the past. Moreover, in contrast to earlier findings, recent research by TCB and others provides further evidence on the forecasting ability of the LEI on a current basis -or in

Effectively predicting cyclical movements in the economy is a major challenge. The U.S. leading index (LI) has long been used to analyze and predict economic fluctuations. We describe and test a new procedure for making the LI more timely. The new LI significantly outperforms its older counterpart. It offers substantial gains in real-time, out-of-sample forecasts of changes in aggregate economic activity (real GDP, the index of coincident indicators, and industrial production) and provides timely and accurate ex ante information for predicting not only business cycle turning points, but also monthly changes in the economy.

Prior to the second half of the twentieth century, the economy of the United States was distinguished by cyclical instability and low growth; however, since the end of WWII, business cycles have moderated, coupled with relatively higher economic growth. Characteristically, in the second half of the twentieth century, periods of expansion were on average six times as long as periods of contraction, with growth cycles being more symmetric in nature. This paper addresses several internal dynamics behind business cycles (mainly endogenous constructs) and outside impulses or disturbances (theories with major exogenous and stochastic elements) that can be attributed to modern business cycle depth and duration. Reasons outlined for this observed business cycle moderation include more effective countercyclical policy by the Federal Reserve, the lack of financial crises and major depressions marked by big business and bank failures, a shift in the structure of global market economies and the employment of automatic stabilizers.

Jennifer Chao, Ataman Ozyildirim, and Victor Zarnowitz The Conference Board March 2007

Business cycles and growth cycles should not be mixed or confused, as is unfortunately often the case in discussions of economic growth. This paper compares various approaches to time series decomposition for the analysis of business cycles and growth cycles as related but separate phenomena. We discuss the phase average trend (PAT) in some detail and compare it with the Hodrick-Prescott and band-pass filter methods of trend estimation. We find that the PAT yields better results for the purposes of identifications and study of growth cycles.

A major shortcoming of the U.S. leading index is that it does not use the most recent information for stock prices and yield spreads. The index methodology ignores these data in favor of a time-consistent set of components (i.e., all of the components must refer to the previous month). An alternative is to bring the series with publication lags up-to-date with forecasts and create an index with a complete set of most recent components. This study uses tests of ex-ante predictive ability of the U.S. leading index to evaluate the gains to this new 'hot box' procedure of statistical imputation. We find that, across a variety of simple forecasting models, the new approach offers substantial improvements.

Some analysts see the expansion of the 1990s as uniquely long and strong. Moreover, according to one popular view, the noninflationary boom can continue indefinitely. To shed some light on this debate, this paper compares the 1990s systematically with two previous long economic expansions, using 31 variables on real activity, inflation, productivity, wages, profits, interest rates, stock prices, foreign trade, and fiscal and monetary policies. Contrary to the popular conception, the cumulative gains in activity were greater in the 1960s and even in the 1980s than in the 1990s. This is because the recovery of 1991-1992 was unusually sluggish, and despite the fact that lately U.S. growth was indeed remarkably high and stable. Inflation was decreasing or stable, a fact which is new for the post-World War II period (but not for the longer historical perspective). Disinflation or deflation abroad contributed much to this outcome, as did the new technologies. The declines of interest rates reflected mostly reductions in inflation and the national debt. Profit margins increased strongly. Still, there are potential imbalances from overborrowing, overspending and undersaving, and rising current account deficits. Overvaluation in some parts of the stock market is probable and worrisome, but hard to evaluate.

Business cycles are fairly well defined yet they have no generally accepted explanation. Natural disasters and then financial crises constituted the earliest perceived reasons for economic instability. Classical literature developed in late 19th-early 20th century favored the idea of self-sustaining or endogenous fluctuations, but recent models stress outside factors and random shocks. In an ideal world under assumptions of perfect competition, flexible prices, national expectations, and money neutrality, real business cycles due to shocks to technology are possible and perhaps also shocks to tastes, relative prices, and fiscal variables. In the real world, there is evidence that many sticky prices and wages coexist with many flexible prices flexible prices and wages. Movements in levels of prices can be stabilizing even while movements in expected changes of prices are destabilizing. Cyclical movements in nominal aggregates point to the role of money. The premise of passive money clashes with the view that monetary policy is very important. Recent history shows monetary factors influence the course of economic activity along with real and expectational variables. Certain variables have long been critically important in business cycles as shown by historical studies within and across countries: profits, investment, interest rates, money and credit. Leads and lags, nonlinearities and asymmetries also had demonstrably eminent roles, which they retain. Multiple-shock models are superior to single-shock models. Finally, recessions have high social costs in terms of unemployment and depressed growth. Expansions can also be costly by causing imbalances and excesses. Structural and policy problems may seem to be separable from these cyclical problems but often are not.

The answer to this question depends on the treatment of logically and empirically prior questions about (1) what the forecasts are and why they are needed, and (2) what can reasonably be expected of them. Further, what forecasters can and should do cannot be established without studying the record and assessing the probable future of their endeavors. Accordingly, the basic approach taken in this paper is to ask of the assembled data what professional standards have economists engaged in macro-forecasting been able to attain and maintain in competing with each other and alternative methods. There is much disenchantment with economic forecasting. The difficult question is how much of it is due to unacceptably poor performance and how much to unrealistically high prior expectations. My argument is that the latter is a major factor. In times of continuing expansion with restrained inflation, as in the 1960s, macro-forecasts looked good and economists were held in high repute. Later when inflation accelerated, serious recessions reappeared, and long-term growth of productivity and total output slackened, the errors of macroeconomic models and forecasts, and the old and new controversies among the economists, received increased public attention. The reputation of the profession suffered, and the interest of academic economists in forecasting, never very strong, weakened still more. Yet the performance of professional economic forecasters, when assessed proper relative terms, has been considerably better in recent times than in the earlier post-World War II period. What happened is that the improvements fell short of enabling the forecasters to cope with the new problems they faced.