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A mixed-frequency smooth measure for business conditions

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Abstract

We propose measuring business conditions via estimating a smooth function of time that serves as a common factor for explaining the comovement of economic indicators across the occurred business cycles. This smooth measure is useful for reducing the noises in assessing the state of business conditions, and can be easily established using mixed-frequency indicators and updated in real time. We also conduct an empirical study to show its usefulness in real data.

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Data Availability Statement

The data used in this study are publicly available. (See Table 1.)

Notes

  1. See also Sect. 5.2 for the estimated \(\ell _i(t)\)’s for a set of indicators for the U.S. economy.

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Acknowledgements

The author is indebted to the Editor, Robert M. Kunst, and two anonymous referees for their comments and suggestions that led to substantial improvements in this paper. The author also thanks the participants of the 2017 Annual Conference of the International Association of Applied Econometrics and the 2017 European Meeting of the Econometric Society for helpful comments on an earlier version of this paper.

Funding

This study was funded by the Ministry of Science and Technology in Taiwan (MOST103-2410-H-001-009) and supported by the Center for Research in Econometric Theory and Applications (Grant No. 109L9002) from the Featured Areas Research Center Program within the framework of the Higher Education Sprout Project by the Ministry of Education (MOE) in Taiwan and MOST 109-2634-F-002-045.

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  1. Department of Finance, Center for Research in Econometric Theory and Applications, National Taiwan University, No. 1, Sec. 4, Roosevelt Rd., Taipei, 10617, Taiwan

    Yi-Ting Chen

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Correspondence to Yi-Ting Chen.

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Chen, YT. A mixed-frequency smooth measure for business conditions. Empir Econ 61, 1699–1724 (2021). https://doi.org/10.1007/s00181-020-01937-w

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