What is the KOF Economic Barometer
This is an amalgamated indicator used in Switzerland to provide reliable readings on the growth of the economy in comparison to a similar quarter in the previous year. The barometer has a multi-sectoral design made up of three components which are core GDP, banking, and construction. It rolls up to 20 individual indicators in several steps making it a multiplex structure. The KOF Swiss Economic Institute publishes it each month.
A Little More on What is KOF Economic Barometer
Players in the Swiss financial markets follow this barometer keenly even though the KOF institute stipulates there are no viable conclusions that can be drawn based on this barometer on the GDP growth rate. The readings that are greater than expected tend to strengthen the Swiss Franc while those that are lower can weaken it.
The institute has published the KOF Economic Barometer since the 1970s. The methodology has kept changing such as in 1998, 2006 and most recently in 2014. A reference series determined by KOF forms the basis of the current barometer version. This series contains month-on-month growth rate of the Swiss GDP that is computed from the breakdown of data from the Swiss Federal Statistical Office by the Swiss State Secretariat for Economic Affairs.
The notion of the barometer is giving an early indication of the bearing of the Swiss business cycle as shown by the reference series.
Currently, the database has over 400 variables, and so two standards are used to determine which variables to use in the barometer calculation. The first is that the variables must influence the Swiss business cycle and the second is that when cross-correlated with the reference series, the variables must show a combination of lead and minimum strength.
An algorithm is then repeated every fall based on these variables which are over 200 although they change yearly. This ensures that the barometer learns and becomes flexible.
A group called SNBCHF.com which provides an understanding into the Swiss economy and financial markets stated that in March 2018 the barometer fell by 2.4 points to a reading of 106.0. It, however, explained that this reading was still above the long term average and it meant that the Swiss economy would continue to grow above the average rates.
References for KOF Economic Barometer
Academic research in the KOF Economic barometer
- The real-time predictive content of the KOF economic barometer, Siliverstovs, B. (2011). Swiss Journal of Economics and Statistics, 147(3), 353-375. This paper investigates the viability of the KOF Economic barometer in predicting Short-term quarterly year-on-year real GDP growth in Switzerland.
- The KOF Economic Barometer, Version 2014: A Composite Leading Indicator for the Swiss Business Cycle, Abberger, K., Graff, M., Siliverstovs, B., & Sturm, J. E. (2014). This article brings forth a complex indicator for the Swiss business cycle that corresponds to the growth rate cycle concept which results from a total overhaul of the KOF Economic barometer published by the KOF Swiss Economic Institute.
- The KOF Economic Barometer–What Does it Tell us and When, Stulz, J. (2005). Swiss National Bank Economic Analysis. This paper conducts real-time analysis of the ability of the KOF barometer to predict and discusses the various ways in which the barometer has been built and identify the primary sources of its instability.
- The KOF Economic Barometer, Version 2014, Abberger, K., Graff, M., Siliverstovs, B., & Sturm, J. E. (2014). (No. 14-353). KOF Swiss Economic Institute, ETH Zurich. This articles the two stages involved in the calculation of a new KOF barometer and they are; first the variable selection procedure and second subsequently transforming the variables into a leading indicator.
- Allowing composite indicators to learn: An application to the KOF Economic Barometer, Abberger, K., Graff, M., Siliverstovs, B., & Sturm, J. E. (2014, July). In 32nd Centre for International Research on Economic Tendency Surveys Conference, CIRET 2014. 32nd Centre for International Research on Economic Tendency Surveys Conference (CIRET 2014). This is a study conducted to investigate whether the composite indicators can be taught to adapt to changing variables and situations and it uses the KOF Economic Barometer as a case study.
- The KOF Economic Barometer, Graff, M. (2015). This article presents a completely overhauled composite indicator of the Swiss business cycle that corresponds to the growth rate cycle concept and which is the KOF Economic Barometer.
- Using newspapers for tracking the business cycle: a comparative study for Germany and Switzerland, Iselin, D., & Siliverstovs, B. (2016). Applied Economics, 48(12), 1103-1118. This paper uses keyword searches in newspaper articles to develop various versions of the Recession-word Index for Germany and Switzerland and use it for forecasting.
- Using rule-based updating procedures to improve the performance of composite indicators, Abberger, K., Graff, M., Siliverstovs, B., & Sturm, J. E. (2018). Economic Modelling, 68, 127-144. In this paper, a rule-based indicator selection procedure that is performed at regular intervals is suggested and is applied to a prominent targeted composite indicator for Switzerland.
- Monitoring Financial Stability in Emerging and Frontier Markets, Bicchetti, D., & Neto, D. (2017). This article details a methodology of developing monthly financial conditions indicators for developing countries, Small Island Developing State, least developed countries and other transitioning economies.
- The Use of Ever Increasing Datasets in Macroeconomic Forecasting, Sturm, J. E. (2015, June). In 2nd Swiss Workshop on Data Science (SDS| 2015). ZHAW Datalab. This paper investigates the viability of using ever increasing datasets in macroeconomic forecasting
- The business cycles and the influence of economic confidence indicators in the European region, Constantinescu, A. (2010). THE FUTURE OF EUROPE, 195. This study presents a methodology that can be applied to analyze how economic confidence indicators can influence the stock market which is an industry that can be overlooked as a transmission environment for the investment sentiment.
- Do Surveys Help in Predicting GDP: A Real-Time Evidence for Switzerland, Siliverstovs, B. (2010). This study examines the usefulness of the KOF Economic barometer in predicting short term out-of-sample quarterly year-on-year real GDP growth rates in Switzerland.