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The pandemic shock had a synchronised impact across the largest euro area economies


Economics in a picture: The pandemic shock had a synchronised impact across the largest euro area economies


The analysis of the business cycle proves to be crucial to understand how economies evolve over time and thus inform policy responses aimed at dampening cyclical fluctuations. In recent decades, one of the instruments that has been proposed to monitor the cyclical evolution of economies refers to the business cycle clock. The underlying idea is to use a set of economic indicators and represent the position of economic activity along four quadrants that allude to the phases of the cycle.

Recently, Lourenço and Rua (2022) proposed a new approach that resorts to circular statistics and summarises the cyclical evolution of dozens or hundreds of indicators. By reading counterclockwise, where 90° (270°) denotes the peak (trough) of the business cycle, the circular business cycle clock summarises these potentially divergent signals in a single direction (red arrow). In addition to the dispersion of these signals illustrated by the number of series in each blue bar in the circular histogram, the confidence intervals associated with the mean direction are also depicted through an arc around it.

The panel illustrates the business cycle clocks at the onset of the pandemic for the largest euro area economies in the month corresponding to the OECD monthly business cycle reference chronology. The results show a synchronised evolution across countries of the turning points following the pandemic shock.



For more details, see Lourenço and Rua (2022), “Business cycle clocks: Time to get circular”, Working Paper No 1, Banco de Portugal.


Prepared by Nuno Lourenço and António Rua. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of the Banco de Portugal or the Eurosystem.


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