E3 - Prices, Business Fluctuations, and CyclesReturn

This article's objective is to create the Composite Coincident Indicator - CCI for the Czech economy, which is useful for monitoring of the Czech business cycle and its comparison with the GDP and the Index of Industrial Production. In the theoretical part of this article, we describe three indexes which currently represent options for monitoring of business cycles. The most useful indexes are the GDP, the Index of Industrial Production and the CCI. We also compare advantages and disadvantages of these indexes for the Czech business cycle. In the empirical part of the article, we analyse 127 indicators from different parts of economics and select coincident cyclic indicators that are the most appropriate for the creation of the CCI. The most useful methods in our analysis are Hodrick-Prescott filter and cross-correlations. Besides the creation of our own CCI, we compare this composite indicator with the GDP and the Index of Industrial Production. Then we analyse prediction abilities of Composite Leading Indicators (CLI) in a relationship with the CCI, GDP and Index of Industrial Production for the Czech economy.