Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310443 
Year of Publication: 
2025
Series/Report no.: 
ADB Economics Working Paper Series No. 766
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
Timely updates of business cycle fluctuations-commonly represented by movements in the output gap-help policymakers make informed decisions on the appropriate course of action. Unfortunately, business cycle assessments often suffer from lags in actual gross domestic product data releases. This paper proposes the use of an Economic Activity Index, developed to monitor monthly business cycle fluctuations in Asia. The index summarizes a selection of updated monthly economic indicators to gauge movements in the output gap. The paper shows that the application of machine learning models substantially improves the ability of the index to track actual fluctuations of the business cycle compared with models constructed using a traditional principal component analysis. Grouping the information used to construct the index into six categories-consumption, investment, trade, government, financial, and the external sector- makes it possible to break down and explain drivers of movements in the business cycle.
Subjects: 
macroeconomic monitoring
tracking business cycles
economic fluctuations
nowcasting
JEL: 
C32
C63
E32
E37
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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