The IFO Business Cycle Clock: Circular Correlation with the Real GDP

Abstract

The IFO Business Climate is the most important indicator for the business cycle in Germany. In 1993 the connection between the two components of the business climate – business situation and business expectations – was graphically portrayed by Ifo in a 4-quadrant scheme: the IFO Business Cycle Clock. Today similar monitoring systems are firmly established and are presented by Eurostat, the OECD and others. The German Federal Statistical Office presents the real GDP in a 4-quadrant scheme. In the following, important qualities of the Ifo Business Cycle Clock are shown. The importance of orthogonal functions for the circular correlation is examined.

Keywords: Ifo business climate, growth cycle, circular correlation, linear-circular correlation, temporal disaggregation

JEL Classification: E32, C32, C39, C22