OECD SHORT-TERM ECONOMIC STATISTICS WORKING PARTY (STESWP)
Short introduction to the Statistics Netherlands Business Cycle Tracer
Floris van Ruth and Roberto Wekker Statistics Netherlands Macro-economic Statistics and Publications Division Department of prices and business cycle statistics
Submitted to the Working Party under item 6 of the draft agenda
Meeting: 26 – 28 June 2006
Franqueville Room OECD Headquarters, Paris Starting at 9:30 a.m. on the first day
What is the Statistics Netherlands Business Cycle Tracer?
Figure 1. Business Cycle Tracer for October 2003.
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Consumption Consumer Confidence Consumer Survey; Durables Exports Bankruptcies Business Survey; Orders recieved Bond Yield (10Y) Industrial Production Producers' Confidence -0,5 Unemployed Labour force GDP
-1 0 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 1 2
October 2003
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Jobs of Employees Vacancies Temp Jobs Fixed Capital Formation
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The Business Cycle Tracer is a tool for displaying and analyzing the current developments in important macro-economic indicators. It offers an easy and robust method for assessing the state of the economy and for analysing the relations between economic indicators. The tracer contains a selection of the most important Dutch macro-economic indicators. The series have been filtered to obtain the medium-term (business cycle frequency) developments.
How does the Business Cycle Tracer work?
Each indicator is placed in the diagram according to its deviation from trend (vertical axis) and the period-on-period change (horizontal-axis) herein. This immediately shows whether an indicator is performing above or below its average development and whether the short-term development is increasing or decreasing.
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Figure 2; Construction Business Cycle Tracer diagram, division into quadrants
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Above trend
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Decreased
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0,5 -0,1 -0,5 0,1 0,3 0,5 0,7
Increased
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Below trend
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As can be seen in figure 2, this approach results in four possible phases by which the development of an economic indicator can be characterized. Above trend and increasing (green, “Boom”), above trend but decreasing (orange, “Decline”), below trend and decreasing (red, “Recession”), and below trend but increasing (yellow. “Recovery”). As their development changes over time, the indicators will move through the tracer diagram, going from one quadrant to the other. This classification offers a simple and clear method to characterize the development of economic indicators.
What indicators does the Business Cycle Tracer contain?
The Business Cycle tracer contains the following macro-economic indicators:
Producer confidence Unemployed labour force Consumer confidence Jobs of employees Temp jobs Consumer Survey; Purchases of Durables (large purchases) Exports
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(inverted)
Fixed capital formation Business survey; Orders received GDP Total Household Consumption Index of Industrial Production Vacancies 10-year bond yield Bankruptcies (capital market rate) (inverted) (manufacturing)
By displaying the development of these indicators in one diagram, a good representation of the developments in the Dutch business cycle is obtained. The way the indicators are distributed across the quadrants is a good indication of the current phase of the Dutch business cycle. A schematic representation of the Dutch business cycle between 1989 and 2004 and the corresponding phase of the cycle tracer is shown in figure 3.
Figure 3; Dutch business cycle and corresponding Business Cycle Tracer phases
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0 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5
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1989
1991
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1997
1999
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2003
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0 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5 -0,5 -1 -1 -0,4 -0,3 -0,2 -0,1 0 0 0,1 0,2 0,3 0,4 0,5
-2 -2
-3 -3
As can be seen in Figure 3, a distinct pattern is visible in the business cycle tracer at the time of turning points in the business cycle. The indicators are then distributed over the “old” and the “new” quadrant.
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Figure 4(a).Business Cycle tracer of Q4 1993 (trough) 4(b) Business Cycle tracer of Q2 2000 (peak)
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0 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5
0 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5
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When the business cycle is in an upswing or downswing, this will be visible in the development and distribution of the indicators, as these will be respectively increasing and decreasing as well.
Figure 5(a).Business Cycle Tracer Q2 1999 (Upswing). 5(b) Business Cycle Tracer Q1 2003 (Downswing).
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0 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5
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0 0,1 0,3 0,5 0,7
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Computing the coordinates of the indicators
The Business Cycle Tracer is based on tracking the cyclical development of the indicators. These are defined as developments over the medium-term (2-11 years), and are computed by taking the filtered deviations from the relevant long-term trend. The first step in the computations is to filter out short-term and seasonal fluctuations. After this, the long-term trend for each indicator is computed. The deviation from this trend is the cycle.
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Figure 6; Private fixed capital formation; filtering, trend computation and cycle determination.
20000 18000
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16000 16000 14000 12000 10000 10000 8000 6000 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Original series Trend cycle 8000 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Trendcycle HP-TREND 14000
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-1 -2 -3 78 80 82 84 86 88 90 92 94 96 98 00 02 04 Cycle
By plotting the distance to trend (the cycle) against the period-on-period change in the cycle, the position of the indicator in the tracer diagram is determined.
Figure 7. Private fixed capital formation;, Cycle and corresponding Tracer coordinates.
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1996
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1998
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