Defining, Measuring, and Predicting the Global Business Cycle in Mature and Emerging Economics: A Composite Index Approach

• Activity Number: 387
• Type: Topic Contributed
• Date/Time: Tuesday, August 5, 2014 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Ataman Ozyildirim*+ and Abdul Erumban
• Companies: The Conference Board and The Conference Board
• Keywords: global business cycles ; forecasting ; composite index ; leading index ; economic growh and fluctuations ; turning points

Abstract

In a globalized world economy, many economists postulate a global business cycle that interacts with the cycles of national economies. We propose new composite indexes to define and measure the global business cycle and to predict its turning points. The new indexes also track the global growth cycle defined as fluctuations in deviations from trend. We use The Conference Board (TCB) Indicators database to aggregate 13 coincident and leading economic indexes covering about seventy percent of global economic output. We apply TCB methodology to create a global index and compare it others. We test whether adding global variables such as oil and commodity prices, Baltic Dry Index, international trade and financial variables help improve the new global indexes. We analyze mature and emerging economies' subindexes and discuss differences in the impact of the global business cycle on these. Finally, we also discuss how these new indexes of short term fluctuations can be incorporated into medium and long term growth projections as factors of the global business cycle.