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New Composite Indicators Based on KOF Business Surveys. Richard Etter, Sibylle Gübeli, Michael Graff. Overview. We present three different composite indicators Financial Sector Indicator Without reference series Coincident indicator Business Situation Indicator GDP as reference series

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new composite indicators based on kof business surveys

New Composite Indicators Based on KOF Business Surveys

Richard Etter, Sibylle Gübeli, Michael Graff

overview
Overview

We present three different composite indicators

  • Financial Sector Indicator
    • Without reference series
    • Coincident indicator
  • Business Situation Indicator
    • GDP as reference series
    • Coincident indicator
  • Employment Indicator
    • Employment as reference series
    • Leading indicator

OECD Workshop on Business and Consumer Tendency Surveys

slide3

KOF Financial Sector Indicator

OECD Workshop on Business and Consumer Tendency Surveys

slide4

KOF Financial Sector Indicator

Aim
  • Situation in the financial sector: There are plenty of monetary indicators but few are value added oriented for the financial sector (banks). The Swiss Federal Statistical Office publishes only yearly data on the „production account“.
  • A quarterly or even a monthly reliable reference series for the value added does not exist
    • Our financial indicator will therefore not be measured or scaled on a reference series
  • We want to find a simple and easy to understand indicator for financial activities which is early disposable
  • The financial sector indicator will be constructed along the following lines
    • Referring only to questions that directly relate to the value added
    • Transparent computation and aggregation
    • Timely provision of information on economic coincident activity of banks

OECD Workshop on Business and Consumer Tendency Surveys

selected items

KOF Financial Sector Indicator

Selected Items
  • Questions from the business survey of banks
  • No screening of the data
  • Three items as candidates that refer to value added on a coincident basis
    • Judgement of the business situation
    • Change in demand
    • Expected change of employment
  • For quantification: traditional balance indicator
  • There is only a minor seasonality but some erratic movements, therefore a low pass filter is applied to separate cycle components from noise
    • Plausible decomposition of the questions on the business situation and on expected employment but not on demand. Therefore, demand will not be considered further

OECD Workshop on Business and Consumer Tendency Surveys

aggregation

KOF Financial Sector Indicator

Aggregation
  • Aggregation procedure:
    • Responses are weighted by employees
    • Calculation of the balance indicator
    • Arithmetic mean of the low pass filtered balance indicators of the two selected questions
  • Quarterly data of the indicator from 2000Q1 until 2007Q3

OECD Workshop on Business and Consumer Tendency Surveys

first indication of performance

KOF Financial Sector Indicator

First Indication of Performance

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KOF Financial Sector Indicator

Value added banks

OECD Workshop on Business and Consumer Tendency Surveys

first indication of performance1

KOF Financial Sector Indicator

First Indication of Performance

OECD Workshop on Business and Consumer Tendency Surveys

results and summary

KOF Financial Sector Indicator

Results and Summary
  • The KOF financial indicator captures the main features of the dynamics that characterise the value added series
  • This is very encouraging. It leads us to conclude that in due time we may be able to refer to a more adequate – quarterly – data corpus with success too

OECD Workshop on Business and Consumer Tendency Surveys

slide10

KOF Business Situation Indicator

OECD Workshop on Business and Consumer Tendency Surveys

slide11

KOF Business Situation Indicator

Aim
  • Monthly coincident indicator to GDP quarterly yoy-growth rate
  • Data base is the KOF BTS
  • Monthly data: manufacturing and retail trade
  • Balance indicators
  • Low erratic movements Judgement
  • Item which is easy to understand for the public Business situation

OECD Workshop on Business and Consumer Tendency Surveys

judgement of the business situation

KOF Business Situation Indicator

Judgement of the business situation
  • Business situation is a common term
  • It goes with the growth-cycle concept
    • Level
    • No trend
  • Natural reference series is the (detrended) GDP-Level, but
  • Best known reference series of the economic development is the yoy-change of GDP

OECD Workshop on Business and Consumer Tendency Surveys

slide13

KOF Business Situation Indicator

Calculations

  • Answers weighted by employees of the firms for manufacturing and retail separately
  • Stratification by firm-size and weighting according to the universe for manufacturing and retail trade
  • Balance indicator of the two sectors
  • Aggregation of both sectors by employees according to the universe
      • This indicator is compatible with growth-cycles not with acceleration and deceleration
  • Yoy-differences of the aggregated balance indicator
  • Original values as well as smoothed values (trend cycle)

OECD Workshop on Business and Consumer Tendency Surveys

kof business indicator and gdp original data

KOF Business Situation Indicator

KOF Business Indicator and GDP (original data)

OECD Workshop on Business and Consumer Tendency Surveys

kof business indicator and gdp trend cycle data

KOF Business Situation Indicator

KOF Business Indicator and GDP (trend cycle data)

OECD Workshop on Business and Consumer Tendency Surveys

summary

KOF Business Situation Indicator

Summary
  • Easy to communicate
  • High correlation (0.80) with yoy-growth rate of GDP
  • Coincident indicator
  • Monthly data with low erratic movements

OECD Workshop on Business and Consumer Tendency Surveys

slide17

KOF Employment Indicator(Work in Progress)

OECD Workshop on Business and Consumer Tendency Surveys

introduction
Introduction
  • Framework: employment indicator
  • Objectives: Early quarterly signaling of the newest development of the Swiss employment by the use of KOF business surveys
  • Employment as a reference series:
    • Relevant for the business cycle
    • Interesting for economic policy

OECD Workshop on Business and Consumer Tendency Surveys

proceedings
Proceedings
  • Introduction
  • Data base
  • Analysis, selection criteria and combinations
  • Results: single indicators
  • From the single to the composite indicators
  • Results: composite indicators
  • Summary

OECD Workshop on Business and Consumer Tendency Surveys

data base kof business survey results
Data Base: KOF Business Survey Results
  • Business surveys in different Swiss sectors
  • Questions about employment and general situation
    • Earlier development
    • Assessment
    • Expected prospective development
  • Most important analysed transformations
    • Trend cycles
    • Balance statistics
    • Monthly data: Average of three months, values of the 1st, 2nd or 3rd months of a quarter

OECD Workshop on Business and Consumer Tendency Surveys

analysis selection criteria and combinations
Analysis, Selection Criteria and Combinations
  • Reference series: employment growth rate relative to the quarter of the previous year (PY)
  • Correlation Analysis: KOF business survey results (single indicators) and the reference series
  • Selection criteria
    • Economically plausible correlation to the employment growth rate (PY)
    • Strong correlation (maximal Correlation > 0.75) at a
    • Lead of two quarters
  • Combining the selected single indicators > composite indicators
  • Correlation Analysis: composite indicators and the reference series

OECD Workshop on Business and Consumer Tendency Surveys

results single indicators
Results: Single Indicators

>> Correlation of selected single indicators and Swiss employment growth rate (PY)

OECD Workshop on Business and Consumer Tendency Surveys

from the single to the composite indicators
From the Single to the Composite Indicators
  • Selected single indicators use information of one sector only
  • Objective: bundle information
  • Bundled information using Principal Components Analysis (common variance)
  • Two reasonable combinations to compare:
    • Combination of the employment-based items (five items)
    • Combination of the employment-based and the business-situation-based items (nine items)

>> Two composite indicators

OECD Workshop on Business and Consumer Tendency Surveys

results composite indicators
Results: Composite Indicators

>> Correlation of two composite indicators and Swiss employment growth rate (PY)

OECD Workshop on Business and Consumer Tendency Surveys

possible employment indicators
Possible Employment Indicators

OECD Workshop on Business and Consumer Tendency Surveys

summary1
Summary
  • Given the Swiss employment growth rate (PY) the composite indicators perform very well:
    • They show a strong correlation
    • They signal turning points in advance
  • Given the selected single indicators the composite indicators are
    • Can be commented comprehensibly because of employment-relevant items of the KOF business survey results
    • Broadly based on items of the different Swiss sectors

OECD Workshop on Business and Consumer Tendency Surveys

thank you for your attention
Thank You for Your Attention

Richard Etter

KOF Swiss Economic Institute

E-Mail: [email protected]

Tel.: +41 44 632 51 56

Sibylle Gübeli

KOF Swiss Economic Institute

E-Mail: [email protected]

Tel.: +41 44 632 53 60

Free registration for our new monthly newsletter (KOF Bulletin):

www.kof.ethz.ch/publications/bulletin/

OECD Workshop on Business and Consumer Tendency Surveys

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