24 February, 2016


Frequently asked questions:

  • Does the CF date recessions and expansions?

The CF dates turning points, peaks and troughs, of economic activity but not recessions and expansions directly. Recessions are usually considered the period between the quarter/month following a business cycle peak and the subsequent trough. Expansions are the period between the quarter/month following a trough and the subsequent peak. Although most of the literature uses this timing convention, it is by no means universal. Our calculations of the duration of expansions and recessions reflect this convention, however.

  • Are recessions and expansions determined by GDP alone?

Not exclusively. As we explain in the methods section of our website, the CF takes into account a variety of indicators, including a breakdown of GDP by sector of activity, labor market indicators, and other economic data. However, GDP carries the most weight. The reason being that economic activity, say, may flag in a given sector but not others. Similarly, if employment declines but economic output does not (possibly reflecting an improvement in productivity), then we would not date a peak of economic activity based on that information alone.

  • What is a recession then?

We use a similar definition to the US business cycle dating committee of the NBER and the Euro Area business cycle dating committee of the CEPR. Using the timing convention described above, recessions start the period following a peak and end at the trough of the economic activity. A decline in economic activity is visible across a majority (but not necessarily all) of sectors for a continued period of time, generally lasting two or more quarters.

  • Ah, so a recession can be declared after two quarters of negative growth?

Not quite. Within a recession, say, there may be brief periods in which the economy exhibits positive growth. Similarly, within an expansion there may be a few months of weak economic activity. The CF interprets temporary and brief periods of positive (negative) growth within the context of a more extended period of economic decline (growth) as belonging to the same recessionary (expansionary) period.

  • Why have such a chronology?

There are a variety of reasons. Having an agreed upon chronology of turning points helps researchers investigate the effects of economic policy at different points of the business cycle. Moreover, it is an important reference for those studying the interaction between labor markets and economic activity. Recessions are usually shorter-lived but with rapid declines in output whereas expansions usually last longer and exhibit more moderate rates of growth. This asymmetric behavior suggests care when evaluating the effect of economic policy. It also has deeper implications for modeling the dynamics of economies.

  • How timely are turning points dated?

The CF takes about one and a half to two years to date turning points. There are three reasons for this delay: (1) initial data releases by the INE are subsequently revised, sometimes by a large amount. The CF prefers to wait and get a more accurate reading of the releases; (2) as mentioned earlier, within a given cyclical phase, there may be a brief pause. The CF prefers to wait to determine whether this interlude truly reflects a turning point or is just a temporary pause within the cyclical phase; (3) smoothing the data requires data from the past and the future for the period under consideration.

  • Why should the public care? Don’t they know when the economy is in good or bad shape right away?

The public has indeed access to anecdotal evidence in real time. However, one’s experiences of those of relatives and friends, or those from particular sectors or regions of an economy may not be indicative of what goes on in the economy as a whole. We realize that our dating is not released sufficiently quickly to provide the public with a timely guide with which to gauge the state of the economy and to judge alternative policy options. For this reason, the CF makes available the CF index of economic activity. This index provides a real-time indication of the state of the economy. Readings above zero are usually associated with periods of expansion, negative readings with periods of recession.

  • Does that mean that the committee dates expansions and recessions using this index? If not, why not?

We provide the index as a purely informational tool that has no bearing in the manner the CF dates turning points. The reason is that, while the index uses data at higher frequencies and in real-time, these data are not a comprehensive measure of economic activity and are subject to revision. Nevertheless, the index provides a useful indication of current economic conditions that coincides quite well with the CF chronology. One of the difficulties of implementing economic policy is that it is complicated to determine the state of the economy in real time. We provide the index as one of many tools the public can use to assess current economic conditions.

  • Who are the Spanish business cycle dating committee members and who appoints them?

The business cycle dating committee was created by the Spanish Economic Association. It is designed after the business cycle dating committee of the National Bureau of Economic Research (NBER) in the U.S., and the Center for Economic Policy Research (CEPR) for the euro area. The Executive Committee of the Spanish Economic Association chooses the dating committee members based on their academic credentials. The current list of members is available on our “Committee” webpage.