Business Conditions Analysis (1) - Essay Example

Business Conditions Analysis [N a m e] METHOD/DATA USED BY THE NBER TO DETERMINE THE TIMING OF BUSINESS CYCLE PEAKS AND TROUGHS:The National Bureau of Economic Research (NBER) has a Business Cycle Dating Committee which determines the dates and time of peaks and troughs in the business cycle and economic activity. In order to determine the timing of business cycle peaks and troughs, it is important first to define clearly the recession, expansion, and associated economic activities. This Business Cycle Dating Committee also identify peak and troughs on the basis of pre-defined definitions of recession and expansion (NBER(a)).

The definition of recession, which is used by the committee, is that it is the time span between the peak and trough of the economic cycle. During this time span, there is considerable amount of decline or downfall in the economic activities. On the other hand, the definition of expansion, which is used by the committee, is that it is the time span between the trough and peak of the economic cycle. During this time span, the economic activities increase by a considerable rate (NBER(a)).The method used by the committee for determining the dates of the important events of the business cycle is inefficient in terms of identifying temporary shifts in the recession and expansion.

As, the committee only take its decisions on the basis of the pre-defined definitions and has no method of identifying that the contraction or expansion are only temporary interruptions or actual (NBER(a)).Along with this, there is no appropriate definition of economic activity. For this purpose, the committee takes help from different economic measures which are used to determine the overall broad activity. Some of these measures, which are used by the committee, are product based real Gross Domestic Product (GDP), income based real Gross Domestic Product (GDP), and the real income of the economy (NBER(a)).

Apart from these broad economic indicators, Business Cycle Dating Committee also sometime uses the narrow economic indicators which are not able to cover the whole economy, for example the industrial production determine by the index of the Federal Reserve and the real sales. Although, use of these narrow economic indicators along with the broad economic indicators can result in the problem of double counting the of the industries and sectors included in both indicators but still these narrow economic indicators can be beneficial when there is conflict between the broad indicators (NBER(a)).

It is also important to establish, that the method used by the committee for the determining peaks and troughs is completely different from the two quarter rule. As, along with real GDP and GDI several other economic indicators are also used by the committee. Apart from this, monthly indicators are given more importance and it is made sure to incorporate the depth of the decline. Lastly, committee uses both product based GDP and income based GDI. The Business Cycle Dating procedure used by National Bureau of Economic Research (NBER), does not identify and determine depression and the double-dip recession (NBER(b)).

There are no real time decisions or judgments by the committee, and all decisions are taken on the basis of the availability of all relevant and associated data. After collecting this data, the previous data is analyzed in order to identify the time when the economy was at the lowest point and started to recover and expand (NBER(b)).Work CitedNBER(a). Statement of the NBER Business Cycle Dating Committee on the Determination of the Dates of Turning Points in the U.S. Economy. 28 Jan. 2010. NBER(b).

Statement of the NBER Business Cycle Dating Procedure: Frequently Asked Questions. 28 Jan. 2010.