Key research areas

The three main areas of research undertaken by the Network are:

Establishing key facts on the Euro area business cycle
Monitoring business cycle in practice
Methodological issues

In setting out to establish the key facts on the Euro area business cycle, the Network is seeking answers to the following questions:

  • what are the driving forces underlying the Euro area aggregate business cycle? What is , for example, the evidence on the conjecture that the US and UK cycles are driven by consumption while the Euro area cycle would be driven by investment?
  • can a set of stylised facts characterising the Euro area business cycle be put together? Is there in particular a meaningful or preferred definition of the Euro area business cycle and of its corresponding turning points? What would then be the differences with respect to the US, viewing this country as a sort of empirical 'benchmark'?
  • can the Euro area be treated as a closed economy? To what extent is the Euro area cycle linked to or affected by cyclical developments elsewhere?
  • what are the various types of linkages to the rest of the world, how important are these and have these changed over time?

Monitoring the business cycle entails:

  • discovering whether significant differences in business cycle behaviour across the Euro countries can be quantified and identified (in terms e.g. of co-movements and lead-lag relations)? Why are there, if any, still substantial differences in business cycles after monetary union took place;
  • identifying the relevant coincident and leading indicators to the Euro area cyclical developments. Several national banks are already systematically comparing available Euro area coincident indicators and one objective is to co-ordinate such exercises;
  • determining if there is, for example, a particular role for monetary and financial indicators in predicting output and inflation;
  • assessing indices such as core inflation, national and sectoral indicators, such as service sector indicators;
  • ascertaining whether error in assessing the cyclical position of the relevant economy affects policy decisions and how this is (or should be) taken into account.

Research into methodological issues includes:

  • forecasting evaluation and data mining;
  • aggregation - what, for instance, is the best way to take into account heterogeneity of national cyclical features?
  • methods for the analysis of large panels;
  • the econometric of structural change.
© The Euro Area Business Cycle Network