Dating the world business cycle
What’s left is in the range of frequencies which are considered ‘the business cycle’. In terms of tools and techniques, we use the filter by Christiano and Fitzgerald.The Christiano Fitzgerald filter belongs to the category of band-pass filters.As an example, the standard operating procedure when drawing the chart of a macroeconomic time-series is to show a shaded background for the period which was a contraction.Here is one example: y-o-y CPI inflation in the US, with recessions shown as shaded bars.The starting point of all these glamorous things, however, is measurement.
As an example, INR started depreciating sharply from January 2008 onwards. Apr-May-Jun 2007, growth was good but the business cycle was about to turn.First, we remove the trend and focus on fluctuations away from the trend.Second, we remove the high frequency fluctuations (below two years) and the low frequency fluctuations (above eight years).The CSO revised the GDP series with a new base year of 2011-12. Hence we stick to the series with old base year for our analysis.As an example, look at the period of the Lehman crisis.