Assessing the Euro Area Business Cycle: Introducing EuroCOIN A Real Time Cyclical Indicator for the Euro Area

On January 28^th, 2002, CEPR will begin the regular monthly release of EuroCOIN: a coincident index of the Euro Area business cycle. Forecasters, policy-makers and business will find it an essential new tool for following the latest developments in the world’s second-largest economy.

• Latest Developments within the Euro Area – EuroCOIN tells us that the Euro Area business cycle peaked in December 1999 and has continued to fall since then. This fall accelerated during November 2001 before moderating in December, suggesting that the cyclical GDP component may be stabilizing.

• What was the impact of September 11? The value of the indicator, calculated using the data available in August, suggested the cyclical component of euro area GDP was flat in August. In fact, the situation was worse in August than anyone realized: using the data available in November, the indicator reveals that the cyclical component of GDP was already falling in August, and continued to fall in subsequent months.

• EuroCOIN is based on innovative econometric techniques, and constructed using 1000 macroeconomic time series from the major countries in the Euro Area. This data set is the first to provide nationally comparable monthly statistics for such a large number of variables.

• A coincident index such as EuroCOIN has important advantages over alternative cyclical indicators. Surveys of confidence and financial variables for example are very noisy signals: they often lead the cycle, but they are not strongly correlated with real variables, are very volatile and often identify turning points incorrectly. The new techniques used by EuroCOIN filter out measurement errors, discrepancies in national statistics and short-run GDP volatility to provide a more accurate indicator of cyclical expansions and contractions.

• EuroCOIN has another key advantage: it’s available quickly. Even though some important data series are only available with a lag, the new econometric techniques provide forecasts for the missing values which can be used to compute the indicator.

Notes for Editors:

CEPR is a network of over 550 Research Fellows based throughout Europe, who collaborate through the Centre in research and its dissemination. CEPR helps its Research Fellows to develop projects, obtain their funding, administer them and disseminate their results. The Centre’s research ranges from open economy macroeconomics to trade policy, from the economic transformation of Central and Eastern Europe to regionalism in the world economy.

Who produces the Indicator? EuroCOIN is published on the 28^th of each month by CEPR and constructed by a team of academic researchers associated with CEPR.  The team comprises: Filippo Altissimo (Banca d'Italia and CEPR), Antonio Bassanetti (Banca d'Italia),Riccardo Christadoro (Banca d'Italia), Mario Forni (Universita di Modena and CEPR), Marc Hellin (ECARES, Universite Libre de Bruxelles), Marco Lippi (Universita di Roma), Lucrezia Reichlin (ECARES, Universite Libre de Bruxelles and CEPR), Giovanni Veronese (Banca d'Italia)

Contact Information:

For interview requests and further information about CEPR please contact CEPR Press Officer Robbie Lonie, Tel: (44 020) 7878 2918, Mobile: 07740519225 or email rlonie@cepr.org

For more information: http://www.cepr.org/data/eurocoin