Judging the stance of the business cycle
This chapter describes if and how we can detect business-cycle turning points. What variables should we study if we want to say something about the likelihood that the business cycle will change? The chapter discusses business-cycle ‘indicators’. It distinguishes between lagging, coincident, and leading indicators. Lagging indicators refer to economic variables that react to a change in the business cycle, i.e. variables that react after a business-cycle turning point. Coincident indicators tell us something about where we are right now in the business cycle. Leading indicators, which are probably the most important ones, tell us about the near-term outlook for the business cycle, i.e. forecast the business cycle. The chapter emphasizes that business-cycle turning points are hard to predict, but also that some indicators are more informative than others.