Do Survey Indicators Let Us See The Business Cycle? A Frequency Decomposition
Source: National Bank of Belgium
This paper uses a frequency domain approach to gain insight into the correlation between survey indicators and year-on-year GDP growth. Using the Baxter-King filter, the authors split up each series into three components: a short-term, a business cycle (oscillations between 18 and 96 months) and a long-term component. They then calculate how much of the variation of the survey series and GDP growth can be ascribed to these different components. Finally, they use this information together with an analysis of the correlation between survey indicators and year-on-year GDP growth at the different frequencies to explain their overall correlation.