EVENT: Seminar

Presenter: Kenneth W Clements Business School The University of Western Australia Abstract: In economics and business much attention is devoted to understanding cycles. Is the economy in recession? (If yes, the central bank should lower interest rates.) Have commodity prices peaked? (Some resource projects should be shelved.) Is the share market about to bottom out? (Buy now.) Does the value of the Australian dollar cycle? (Trade-exposed industries should wait for the current appreciation to turn around.) Are the sales of my product in terminal decline or is it a cyclical downturn that will reverse itself? (A new product may or may not be required.) But exactly what is meant by an economic cycle is elusive in both theory and practice, and involves challenging issues in pattern recognition and economic measurement.

In this presentation,Ken Clements of the Business School gives an introduction to some of these issues and then turn to the emerging area of multivariate cycles - n variables that exhibit a common cycle. The problem here is when there are a many indicators of the state of the economy, the signals can be mixed – some can point to an upturn, others to a downturn, for example. I discuss how to combine this conflicting information into a single index of economic conditions. This index plays the role of the “underlying cycle” that has the property of minimizing the distortionary impact of the measurement error in the n individual signals. This is essentially the panel regression approach of Stock and Watson (2010). I elaborate and evaluate this rich approach, note its links to stochastic-index-number theory and suggest new interpretations, modifications and extensions. Drawing on joint research with Grace Gao, the approach is illustrated with the prices of six important metals.

About the speaker: Ken Clements is an economist at the UWA Business School with interests in international finance, monetary economics and applied micro, including index numbers. His research has been supported by a series of grants from the Australian Research Council and he has published recently in journals such as the American Journal of Agricultural Economics, European Economic Review, Journal of Business, Journal of International Money and Finance and International Statistical Review. In 2009, Cambridge University Press published his book (co-authored with X. Zhao) Economics and Marijuana. He is a Winthrop Professor and BHP Billiton Research Fellow. Location: Mathematics Lecture Room 3 (G.02, Ground floor of Mathematics Building (entrance from the James oval side)) Location Map