A New Coincident Index of Business Cycles Based on Monthly and Quarterly Series

• Main Authors: Mariano, Roberto S., Murasawa, Yasutomo
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Factor analysis; Time series; Missing observation; State-space model; Kalman filter; Stock-Watson index; Econometrics; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/766; https://ink.library.smu.edu.sg/context/soe_research/article/1765/viewcontent/New_Coincident_Index.pdf
• Institution: Singapore Management University

Popular monthly coincident indices of business cycles, e.g. the composite index and the Stock-Watson coincident index, have two shortcomings. First, they ignore information contained in quarterly indicator such as real GPD. Second, they lack economic interpretation; hence the heights of peaks and the depths of troughs depend on the choice of an index. This paper extends the Stock-Watson coincident index by applying maximum likelihood factor analysis to a mixed-frequency series of quarterly real GDP and monthly coincident business cycle indicators. The resulting index is related to latent monthly real GDP.