November 2020 Report of the Multiple Cycles Indicator
November 20th, 2020
Fourier analysis is coupled with GARCH regression, mixed distribution estimation, and harmonic regression to detect the multiple cycle structures for 25 OECD member countries. Out-of-sample estimates indicate the current direction of economic growth. The current report is based on OECD figures up until 2020 Q3.
Table 1 presents an overview of the detected cycle lengths for all 25 member countries, the G-7 countries, Europe and the entire OECD. Multiple cycle structures are found for all 25 member countries. There are 5 countries with 2 cycles, 15 countries with 3 cycles, and 8 countries with 4 cycles. Interestingly, some cycle lengths occur more frequently than others. The cycles of 5-6 years, and the cycles of 9-10 years occur more frequently than the other cycles, with 13 and 19 occurrences respectively.
Table 1. Detected cycle lengths
We use the detected cycles length in Table 1 to model the cyclic behavior of the GDP growth rates. We employ a trend-cycle model, where the cycles are captured using harmonic terms. Table 2 presents the estimated out-of-sample direction of economic activity. The MCI indicates a downward trend in the year 2020 for 15 of the 25 OECD member countries in the sample. For these countries, the GDP growth rate is expected to decline until at least 2020Q4. GDP growth is expected to increase for 10 of the 25 OECD member countries. GDP growth is expected to decline overall for the G-7 countries, Europe, and the entire OECD.
Table 2. Current economic condition
The figures below show the GDP growth rates and out-of-sample fit for the G-7 countries, Europe, and the entire OECD. The MCI indicates a serious economic downturn for all three of these groups. Overall the economic outlook is negative. The harmonic regression model is represented by the yellow line.
Figure 1. Quarterly GDP growth and harmonic fit for G-7 countries
Figure 2. Quarterly GDP growth and harmonic fit for Europe
Figure 3. Quarterly GDP growth and harmonic fit for the entire OECD
Additionally, we provide the harmonic regression fits for all panel member countries, the G-7 countries, Europe and the entire OECD:
Harmonic regression fit November 2020 [Adobe PDF]
