Business Cycle Analysis

Abstract

The first step in economic forecasting is to establish the actual position of the economy. This is a prerequisite for a proper forecast of where it is heading (section 2.1). The starting point is therefore the collection of a great variety of economic information with a view to assessing the state of the economy before national accounts data become available, weeks or months later (section 2.2). Survey data can provide precious insights, almost in ‘real time’, and usefully complement the ‘hard data’ due to be released later (section 2.3). Once a range of reasonably comprehensive information has been gathered, the challenge is to make sense of it, by adjusting the raw data in various ways and combining some of them to build summary indicators (section 2.4). In this context, bridge models are especially useful for near-term forecasting purposes (section 2.5). Even so, macroeconomic monitoring involves difficult trade-offs between abundant but often seemingly inconsistent bits of information (section 2.6).