April 2022 Report of the Multiple Cycles Indicator
April 1st, 2022
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 2021 Q2.
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 22 countries with 3 cycles and 6 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 21 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 an upward trend in the year 2021 for 20 of the 25 OECD member countries in the sample. For these countries, the GDP growth rate is expected to increase for several quarters in a row. GDP growth is expected to decline for Ireland and Korea. GDP growth is expected to be stable for Portugal, South Africa, and the USA.
Table 2. Current economic condition
The figures below show the GDP growth rates and out-of-sample fit for Portugal, South Africa, and the USA. For these countries, the MCI currently indicates a stable period, before economic growth starts to pick up again. The harmonic regression model is represented by the yellow line.
Figure 1. Quarterly GDP growth and harmonic fit for Portugal
Figure 2. Quarterly GDP growth and harmonic fit for South Africa
Figure 3. Quarterly GDP growth and harmonic fit for the USA
Additionally, we provide the harmonic regression fits for all panel member countries, the G-7 countries, Europe and the entire OECD:
Harmonic regression fit October 2021 [Adobe PDF]
