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Why Use a Diffusion Index?

Author

Listed:
  • Santiago Pinto
  • Sonya Ravindranath Waddell

Abstract

Diffusion indexes are a useful way to summarize economic information from surveys because they are easy to understand and correlate well with economic activity over time. To use diffusion indexes most effectively as a measure of change, however, it is important that the extensive margin of the indicator in question explains more of the change in that indicator than the intensive margin. This article, and the papers described in it, can also be used to develop a confidence interval around any diffusion index.

Suggested Citation

  • Santiago Pinto & Sonya Ravindranath Waddell, 2022. "Why Use a Diffusion Index?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 22(22), June.
    • Handle: RePEc:fip:fedreb:94368
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    File URL: https://www.richmondfed.org/publications/research/economic_brief/2022/eb_22-22
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    File URL: https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_brief/2022/pdf/Appendix-EB-22-22.pdf
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    Cited by:

    1. Pedro Elosegui & Mirta González & María Cecilia Pérez & Máximo Sangiácomo, 2022. "A Diffusion Index Analysis of the Argentinean Business Economic Cycle During the COVID-19 Pandemic," BCRA Working Paper Series 2022105, Central Bank of Argentina, Economic Research Department.

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