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European Commission 2007

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European Commission Directorate General for Economic and Financial Affairs Report: The Economic Climate Tracer A tool to visualise the cyclical stance of the ... – PowerPoint PPT presentation

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Title: European Commission 2007


1
European Commission Directorate General for
Economic and Financial Affairs
Report The Economic Climate Tracer A tool to
visualise the cyclical stance of the economy
using survey data
Christian Gayer (christian.gayer_at_ec.europa.eu) Joi
nt EC/OECD Workshop on Business and Consumer
Surveys 12-13 November 2007, Brussels
European Commission 2007
2
Motivation
  • Conventional use of business and consumer survey
    results time series plots
  • Can information be assembled/presented in a
    different way, so as to
  • create added value for standard users
  • reach new audiences by attractive graphics
  • increase overall service?
  • Example Ifos "Konjunktur-Uhr, similar tool was
    used in DG ECFIN (Survey Watch)

European Commission 2007
3
Economic Climate Tracer
  • A new graphical tool used within DG ECFIN
  • Plotting levels against monthly changes
  • Rotation through quadrants of the graph
  • Corresponding to (growth) business cycle phases
  • Involves smoothing of input series
  • Main value added Cross-section view provides
    cyclical stance across sectors at a glance

European Commission 2007
4
  • Outline
  • Critical review of an earlier tool the Survey
    Watch
  • The Economic Climate Tracer
  • set-up
  • time-series view
  • cross-section view
  • Critical note smoothness vs. absence of
    revisions
  • Conclusions

European Commission 2007
5
  • 1. Critical review of an earlier tool the
    Survey Watch
  • Similar to Ifo Business Cycle Clock
  • Manufacturing industry
  • Current business perceptions vs. expectations
    (production, 3 months ahead)
  • Anticipation rotation through the 4 quadrants as
    expectations should systematically lead
    assessments

European Commission 2007
6
France
Survey Watch, 1990-2006

Euro area
Spain
European Commission 2007
7
  • Drawbacks of the Survey Watch in practice
  • Short-term volatility dilutes systematic
    developments within between quadrants
  • Too short lead of expectations ?no rotation, but
    movements along the main diagonal
  • Definition of quadrants not in line with
    conventional business cycle phases, determined by
    turning points

European Commission 2007
8
euro area
Survey Watch, smoothed data

France
Spain
European Commission 2007
9
  • Drawbacks of the Survey Watch in practice
  • Short-term volatility dilutes systematic
    developments within between quadrants
  • Too short lead of expectations ?no rotation, but
    movements along the main diagonal
  • Definition of quadrants not in line with
    conventional business cycle phases, determined by
    turning points

European Commission 2007
10
  • 2. The Economic Climate Tracer (1)
  • Inspired by Statistics Netherlands Business
    Cycle Tracer
  • Based on sectoral Climate Indicators, derived by
    PCA from BCS input series
  • Indicators are smoothed (low-pass HP)
  • Standardised level on y-axis plotted against
    m-o-m changes on x-axis

European Commission 2007
11

GRAPH 3 Diagram of the Economic Climate Tracer
over time
European Commission 2007
12
  • 2. The Economic Climate Tracer (2)
  • Important visual attraction automatic circular
    movement (counter-clockwise)
  • Smooth evolution due to filtering
  • Vertical dimension of the graph mirrors evolution
    of the raw series
  • Peaks in the upper centre of the graph, troughs
    in the lower centre
  • Quadrants correspond to growth cycle phases

European Commission 2007
13
Time series view of euro-area climate indicators,
Jan 2000 to Sep 2007 (1)
European Commission 2007
14
Time series view of euro-area climate indicators,
Jan 2000 to Sep 2007 (2)
European Commission 2007
15
Time series view of euro-area climate indicators,
Jan 2000 to Sep 2007 (3)
European Commission 2007
16
  • Time-series view summary
  • Similar picture across euro-area sectors
  • Peak in mid-2000
  • Mini-cycles in 2002-2005
  • Since 2006 in the boom quadrant
  • Move to downswing quadrant in early 2007

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17
  • Cross-section view
  • Displays several indicators in one graph
  • Focus on latest data point (smoothed)
  • Coincident indicator of overall cyclical stance
  • Comparative sector-wise analysis

European Commission 2007
18
Cross-section Economic Climate Tracer for the
euro area in September 2007
European Commission 2007
19
  • Cross-section view euro area
  • Peak passed in all business sectors
  • Consumer climate marks peak, on the borderline to
    downswing
  • Building, retail trade and particularly industry
    climate still at high levels
  • Services and consumer climate at low levels,
    never fully recovered from low 2003-05 level

European Commission 2007
20
Cross-section Economic Climate Tracer for Germany
and France, Sep 2007
European Commission 2007
21
  • Cross-section view Germany and France
  • Germany in early downswing phase, sustained by
    still relatively upbeat industry and consumer
    climate
  • France in late boom phase, exceptionally high
    level of retail climate. All indicators cluster
    at the border to downswing

European Commission 2007
22
  • 3. Critical note smoothness vs. absence of
    revisions (1)
  • Crucial part of the Tracer smoothing
  • Implies revisions as more observations become
    available, especially around TPs
  • Consequence lag at turning points
  • Flip side of suppression of erratic turns
  • Timely and reliable TP-detection in noisy raw
    series is difficult, too
  • ? matter of choice!

European Commission 2007
23
  • 3. Critical note smoothness vs. absence of
    revisions (2)
  • Focus on easy-to-use graphical tool
  • Risk of surprises mitigated by look at unsmoothed
    series and
  • Combined look across sectors (clusters?)
  • ? Still useful tool in monitoring turning points

European Commission 2007
24
  • 3. Critical note smoothness vs. absence of
    revisions (3)
  • Technically
  • HP69 filter, i.e. excluding movements of less
    than 18 months duration
  • No de-trending of series
  • Comparison with other filters HP works well,
    relatively fast in detecting TPs in real time

European Commission 2007
25
Conclusions
  • Attractive, useful and efficient tool for
    visualising and analysing the business cycle
  • Reliable picture of the current overall state of
    the economy
  • Disaggregate approach enables comparative
    sector-wise analysis (against historical average
    and against other sectors)
  • Helps to detect turning points
  • Main value added Cross-section view provides
    cyclical stance across sectors at a glance

European Commission 2007
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