Abstract
We use the information content in the decisions of the NBER Business Cycle Dating Committee to construct coincident and leading indices of economic activity for the United States. We identify the coincident index by assuming that the coincident variables have a common cycle with the unobserved state of the economy, and that the NBER business cycle dates signify the turning points in the unobserved state. This model allows us to estimate our coincident index as a linear combination of the coincident series. We compare the performance of our index with other currently popular coincident indices of economic activity.
Highlights
Suppose that we are asked to construct an index of health status of a patient
We like to think that our method uncovers the “Missing Link” between the pioneering research of Burns and Mitchell (1946), who proposed the coincident and leading variables to be tracked over time, and the deliberations of the NBER Business Cycle Dating Committee who deÞne a recession in terms of these same coincident variables as “... a recurring period of decline in total output, income, employment, and trade, usually lasting from six months to a year, and marked by widespread contractions in many sectors of the economy”
The basic idea behind this paper is simple: use the information content in the NBER Business Cycle Dating Committee decisions to construct a coincident index of economic activity
Summary
Suppose that we are asked to construct an index of health status of a patient. suppose that we know that the best indicator of the health of the patient is the results of a blood test. We like to think that our method uncovers the “Missing Link” between the pioneering research of Burns and Mitchell (1946), who proposed the coincident and leading variables to be tracked over time, and the deliberations of the NBER Business Cycle Dating Committee who deÞne a recession in terms of these same coincident variables as “...
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