The KOF Economic Barometer, Version 2014: A Composite Leading Indicator for the Swiss Business Cycle
KOF Working Paper No. 353
53 Pages Posted: 14 Mar 2014
Date Written: March 14, 2014
This paper presents a composite leading indicator for the Swiss business cycle corresponding to the growth rate cycle concept. It is the result of a complete overhaul of the KOF Economic Barometer that has been published by the KOF Swiss Economic Institute on a monthly basis since 1976. In line with this tradition, the calculation of the new KOF Barometer comprises two main stages. The first consists of the variable selection procedure; and in the second stage these variables are subsequently transformed into one leading indicator. Whereas in the previous versions of the KOF Barometer six to 25 variables survived the first stage, the new – less discretionary and more automated – version of the first stage is much more generous. Currently, out of a set of 476 variables resulting in 4356 transformations thereof that are tested in the first stage, 219 variables manage to enter the second stage. The increased number of variables underlying the second stage allows a relatively stable and robust KOF Barometer – compared to its previous versions – that has hence no longer to rely on filtering techniques to reduce the noise in the final indicator. In a (pseudo-) real-time analysis the characteristics of the new KOF Barometer are compared to the previous versions and other alternatives.
Keywords: Business cycles, growth rate cycles, composite indicators, leading indicators, principal component analysis, real-time simulations
JEL Classification: E32, E37
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