Research Division Business Cycles

The Research Division Business Cycles focuses on theoretical and empirical analyses and forecasts of economic activity in Switzerland. This is largely based on continuous observation and forecasts of the international economy a swell as on monthly and quarterly business tendency surveys amongst Swiss firms. This information is analysed and aggregated into a number of coincident and leading composite indicators. In addition, sectoral models as well as a large macroeconometric model of the Swiss economy are referred to for short and medium term forecasts as well as for model-based analyses of economic policy options.

A major function of this activity is to supply timely information on the state of the economy and the expected tendency of the Swiss business cycle to professional economists, decision makers in government and administration, survey participants and, last but not least, the interested general public. To this end, the division produces a large number of periodic publications and press releases, gives external lectures, and answers requests for economic data and assessments from the media and other interested parties. Another major function of KOF – and hence also of the Division Business Cycles – is scientific research for dissemination in academic and related professional circles via publications and participation in international meetings and conferences. The division comprises the sections International Business Cycles, Business Tendency Surveys, Business Cycles Modelling and Economic Policy.

Section International Business Cycles

The section International Business Cycles analyses and forecasts the international economic environment that Switzerland – a small open economy – faces. In particular, this section produces detailed quarterly forecasts of the international economy in real terms as well as of interest rates, exchange rates and inflation. The regional focus is on the EU, the US and East Asia. The results constitute a crucial input into the quarterly KOF forecasts for Switzerland; they are also published as KOF International Forecasts. Apart from this, the section conducts in-depth analyses of topics related to business cycles from an international perspective, and it represents KOF at the “Association d'Instituts Européens de Conjoncture Economique” (AIECE) as wells as at the “Gemeinschaftsdiagnose” – the joint forecast of the leading economic research institutes from the German-speaking countries.

As before, regional foci will be on the EU, the US and East Asia. Yet, due to the trends in the international economy, more effort will be devoted to track and forecasts economic activity in South Asia and Latin America. Given the close relationship between Swiss monetary policy, stock, bond and foreign exchange markets on the one hand and short-term economic developments in the rest of the world – and in particular in Europe – on the other hand, questions related to these issues will also be addressed by this research section.

Section Business Tendency Surveys

An essential and – due to its timeliness, representativeness and richness of detail – unique source of information are the monthly and quarterly business tendency surveys conducted amongst Swiss firms. They reflect a broad and at the same time multi-facetted image of the business situation and thus convey crucial information on the state and the tendency of the Swiss economy. The quality of the surveys is carefully monitored; the survey data are systematically evaluated against related statistics, and the sample as well as the weights used in aggregating the survey responses are continuously checked and – if necessary– revised. In addition, the section systematically assesses alternative methods of quantifying the mostly qualitative information from the surveys. Practically all research divisions and sections within KOF draw on this source of micro and macro data. For the division Business Cycles, the identification of coincident and leading indicators in the survey data is of special interest, as these form the basis for our composite indicators for the Swiss economy as a whole as well as for particular sectors and regions. Amongst the composite indicators for the Swiss economy, the KOF Economic Barometer is arguably the most widely noticed.

Increased effort will be made to supply survey data to both economic researchers as well as a broader public. There is an increasing demand for regional and sector specific analyses and breakdowns of the Swiss business cycle. The same holds with respect to firm (micro) data for use in econometric analyses. Moreover, a clear focus in the years to come will be on analyses of micro (firm) data. Unlike other sources, our data offer the opportunity e.g. to analyse firms’ expectations and to compare them with outcomes. A promising way to enrich the data with outplacing additional burden on the responding firms is to match the survey data with other firm-specific data, which are already available from commercial providers.

Furthermore, KOF is following the strategy of harmonising its business tendency surveys in accordance to the international harmonisation process led by the European Commission and the OECD. This includes not only items to be questioned, but also the wording of the questions, the definition of branches and the labelling of the periods of each survey wave. Several surveys are already adapted to international standards. In the next years, these standards will subsequently be applied to the financial sector, the construction sector and architects and engineers, too. Moreover, the investment survey will be completely revised. Besides international comparability, the harmonisation offers increased opportunities to aggregate identical questions across sectors to overall results for the Swiss economy. Finally, it will be investigated to what extent it ispossible also to survey economic tendency in sectors heavily regulated by the government, as e.g. the health sector.

Section Business Cycle Modelling

The activities of this section rely heavily on empirical research. The main task of the modelling section is to provide appropriate models and estimations of economic volumes and prices at the macro level. The core project is the KOF macroeconometric model, which is used to calculate the quarterly KOF forecasts for the Swiss economy, and needs to be maintained properly. Besides this, various specific models for different purposes are in use. Another field of the section is analysis of statistical data in the macroeconomic field regarding the properties and the exact definition of data used in the modelling process. Our modelling section will extend its research on nowcasting. Different indicators, but also regularities observed in revision processes can deliver important information to gain better insight with respect to the current economic situation in Switzerland. In the future, more emphasis will also be placed on “thick modelling” (model pluralism) at all stages of forecasting as well as the requirement to track, implement and contribute to advances at the international scientific frontier of research on economic forecasting and modelling.

Section Economic Policy

The section Economic Policy monitors, analyses and comments on the economic policy with special reference to Swiss concerns. Major focal points are the monetary policy of the Swiss National Bank and the fiscal policy of governmental bodies. Among the research interests in the field of monetary policy are inflation expectations and the communication of central banks. The research on fiscal policy is concerned with the assessment of the necessities and possibilities of stabilisation measures. Another focus is the analysis of the labour market (employment and unemployment, wages and income). Relating to the quarterly KOF forecasts for the Swiss economy, this section regularly provides forecasts of inflation prospects, the development of public finances and key labour market variables.