May 2019 Report of the Multiple Cycles Indicator

May 30th, 2019


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 2019 Q1.


Table 1 presents an overview of the detected cycle lengths for all 25 member countries, and Europe. Multiple cycle structures are found for all 25 member countries. There are 11 countries with 2 cycles, 12 countries with 3 cycles, and 2 countries with 4 cycles, and 1 country with 5 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 14 and 18 occurrences respectively.


Table 1. Detected cycle lengths


We use the detected cycle lengths 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 2019 for 15 of the 25 OECD member countries in the sample. This concerns Western and Southern European countries, and Australia, Japan, and Norway, where the GDP growth rate is expected to decline until 2019Q4, or longer. The outlook is stable for the UK. GDP growth is expected to increase for Northern America, Finland, Greece, Iceland, Korea, Sweden, and South Africa.


Table 2. Current economic condition


The figures below show the GDP growth rates and out-of-sample fit for Greece, and for the UK. For Greece the harmonic regression model had indicated a decline in GDP Growth that has not (yet) been matched by the data, and currently indicates an increase in GDP growth. For the UK the GDP growth rate is expected to remain stable. The harmonic regression model is represented by the yellow line.


Figure 1. Quarterly GDP growth and harmonic fit for Greece


Figure 2. Quarterly GDP growth and harmonic fit for the UK



Additionally, we provide the harmonic regression fits for all panel member countries, and Europe:  

PDF Harmonic regression fit May 2019 [Adobe PDF]