Measuring European Business Cycles

In the United States the identification of  the turning points in business cycles has been done by the National Bureau of Economic Research, early pioneers in business cycle research.  Europe has not had the same tradition and it is only with the development of the European Community and the Eurozone that common comparable economic statistics have made the task easier.  Although there were many attempts to identify cycles by national statistical agencies and central banks, the first coordinated efforts were undertaken by the Center For Economic Policy Research (CEPR).  The CEPR Business Cycle Dating Committee was created in 2002 with the objective of identifying business cycle turning points for the Euro area. They have looked retrospectively for business cycle turning points for the 11 original members from 1970 to 1998. From 1998 on they have identified recessions for the Euro Area as a whole.  Their analysis can be found here.

Our goal is to look at the business cycles in the major European economies. Initially we look at Germany, the U.K., France, Spain, Italy, and the Netherlands.  Our objective is to compare the business cycle in these economies, particularly the current cycle.  We will also look at the historical cycles in these countries, comparing them to the current cycle, depending on data availability.  The U.K. is not part of the Euro Zone and the data availability is very different for some of the other countries. For that reason we have used a Hodrick-Prescott filter to identify the cycles in each of these countries.  The H-P Filter produces some different results for individual economies and it is perfectly consistent with the CEPR view of the current cycle. We are well aware of the potential shortcomings of the H-P filter particularly its sensitivity to end points. See our Note on alternative filtering methods and their application in sharp downturns.

The Table below shows the business cycles we have identified for our initial analysis. The dates in black are those that agree with the CEPR cycle dates. Entries in green are those that disagree.

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