DP3696 Dating the Euro Area Business Cycle

Author(s): Michael J Artis, Massimiliano Marcellino, Tommaso Proietti
Publication Date: January 2003
Keyword(s): Business cycle, cycle dating, cycle synchronization, euro area
JEL(s): E32, E34
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3696

In this Paper we compare alternative approaches for dating the euro area business cycle and analysing its characteristics. First, we extend a commonly used dating procedure to allow for length, size and amplitude restrictions, and to compute the probability of a phase change. Second, we apply the modified algorithm for dating both the classical euro area cycle and the deviation cycle, where the latter is obtained by a variety of methods, including a modified HP filter that reproduces the features of the BK filter but avoids end-point problems, and a production function based approach. Third, we repeat the dating exercise for the main euro area countries, evaluate the degree of synchronization, and compare the results with the UK and the US. Fourth, we construct indices of business cycle diffusion, and assess how widespread are cyclical movements throughout the economy. Finally we repeat the dating exercise using monthly industrial production data, to evaluate whether the higher sampling frequency can compensate the higher variability of the series and produce a more accurate dating.