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A Wavelet Evaluation of Some Leading Business Cycle Indicators for the German Economy

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  • Jens J. Krüger

    (Department of Law and Economics)

Abstract

Leading indicators are important variables in business cycle forecasting. We use wavelet analysis to investigate the lead-lag stability of German leading indicators in time-frequency space. This method permits a time-varying relation of the leading indicators to the reference cycle allowing simultaneously to focus on lead-lag stability at the specific business cycle frequencies. In this way we analyze an index of new orders, a survey-based index of business expectations, an index of stock market returns and the interest rate term spread. We confirm that most of these indicators are indeed leading the reference cycle most of the time, but the number of months leading varies considerably over time and is associated with a great deal of estimation uncertainty.

Suggested Citation

  • Jens J. Krüger, 2021. "A Wavelet Evaluation of Some Leading Business Cycle Indicators for the German Economy," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 17(3), pages 293-319, December.
    • Handle: RePEc:spr:jbuscr:v:17:y:2021:i:3:d:10.1007_s41549-021-00060-8
    DOI: 10.1007/s41549-021-00060-8
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    More about this item

    Keywords

    Business cycle forecasting; Leading indicators; Wavelet analysis; Phase difference;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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