Seventy-Five Years Later: Constructing a Coincident Index of Global Economic Activity

• Activity Number: 588
• Type: Topic Contributed
• Date/Time: Wednesday, August 7, 2013 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Shushanik Papanyan*+ and Enrique Martínez-García
• Companies: BBVA Compass and Federal Reserve Bank of Dallas
• Keywords: Globalization ; Business Cycles ; Recession ; Turning Point ; Dynamic Factor Model ; Bry-Boschan Algorithm

Abstract

We develop a practical tool to monitor global business cycles by extending the definition of a 'classical cycle' from a single country to the world. Staying consistent with NBER methodology, we propose formal econometric tools to construct a Global Reference Cycle and report global peak to trough turning points. Furthermore, we estimate a Coincident Index of Global Economic Activity that aims to provide timely information on global economic fluctuations and track the turning points of the Global Reference Cycle. The Global Coincident Index is constructed using a "small data" approach, relying on a manageable "core set" of economic indicators that coincide with the global cycle. The methodologies proposed are simple, robust, easy to replicate, and are comparable to measures of country-specific business cycle fluctuations.