nr 100 - The Dutch business cycle: which indicators should we monitor?

DNB Working Papers
Date 7 May 2006

In this study we construct a business cycle indicator for the Netherlands. The Christiano-Fitzgerald band-pass filter is employed to isolate the cycle using the definition of business cycle frequencies as waves with lengths longer than 3 years and shorter than 11 years. The main advantage of band-pass filtering is the unambiguous concept of a business cycle, to which the filtered approximation will eventually converge as more and more observations become available. The coincident business cycle index is based on industrial production, household consumption and staffing mployment. These three variables represent key macroeconomic developments, which are also analysed by both the CEPR and NBER dating committees. For the indicator to be useful in practice, a timely update and therefore a limited publication delay is a crucial constraint. The composite leading index consists of eleven indicators representing different sectors in the economy: three financial series, four business and consumer surveys and four real activity variables, of which two supply- and two demand-related. Keywords: business cycles, leading indicators, band-pass filter, forecasting. JEL Code: C82, E32, E37