The Dutch business cycle: A finite sample approximation of selected leading indicators

Abstract

In this study we construct a business cycle indicator for the Netherlands. The Christiano-Fitzgerald band-pass filtter is employed to isolate the cycle using the definition of business cycle frequencies as waves with lengths longer than 3 years and shorter than 11 years. The coincident business cycle index is based on industrial production, household consumption and staffing employment. These three variables represent key macroeconomic developments, which are also analysed by both the CEPR and NBER dating committees. The composite leading index consists of eleven indicators representing different sectors in the economy: three financial series, four business and consumer surveys and four real activity variables, of which two supply - and two demand-related. The pseudo real-time performance of the composite indicator is analyzed by the extent to which the indicator gets revised as more data becomes available. Finally, the composite leading indicator is employed in a bivariate Vector Autoregressive model to forecast GDP growth rates.