FAQ

What is an economic cycle?

An economic cycle is a non-directly observable phenomenon that refers to fluctuations in aggregate economic activity in which episodes of sustained and generalized growth, known as expansions, are followed by others of equally generalized decline, called recessions. This sequence of changes is recurrent, but not periodic.

 

What is a recession?

It is the phase of the cycle in which there is a temporary, significant, sustained and generalized decline in economic activity.

 

What is an expansion?

It is the phase of the cycle in which there is a temporary, significant, sustained and generalized growth in economic activity.

 

What are the characteristics of a recession?

According to Shiskin (1974), they can be characterized according to the so-called three “D's”: depth or magnitude of the decline in economic activity, duration in number of months, and diffusion or generalization of the decline in the different economic activities.

 

How are the expansion and recession phases dated?

They are dated based on the identification of the “turning points”, which define their beginning and end.

 

What are turning points?

Turning points are classified into peaks and troughs, which indicate the beginning and end of the phases of the economic cycle. Peak refers to the month in which economic activity reaches a local maximum, indicating the end of an expansion phase and the beginning of a recession, while trough is associated with the month in which economic activity reaches a local minimum, indicating the end of a recession phase and the beginning of an expansion one.

 

How is the duration of a recession measured?

The duration of a recession is measured by the number of months that elapse from the month following the peak that indicates the end of the expansion phase to the trough month that signals its end.

The duration of the expansions is measured in a similar way (from the month following the trough to the month of the peak), while that of the cycle includes the number of months from the month following a peak to the next peak or from the month following a trough to the next trough.

 

Is the so-called 'technical recession' really a recession?

“Technical recession”, a very popular concept in the media and in the world of finance, and attributable to Arthur Okun. It refers to a decline in the level of real GDP for at least two consecutive quarters. This is a simplistic and limited definition because it does not take into account the characteristics of a recession identified by Shiskin (1974) in relation to the three “D's”, depth, duration and diffusion, which it must have in order to be classified as such. 

In particular, the so-called “technical recession” only considers duration. Therefore, this Committee maintains that the concept of “technical recession” is not precise enough and therefore advises against its use

 

Are all recessions the same?

Not all recessions are the same. For example, some are shallower and longer, such as the one from October 2000 to January 2002, which lasted 16 months, while others are short and deep, such as the one from December 1994 to May 1995, which lasted 6 months

 

What are the existing approaches to studying business cycles?

There are two main approaches: the classical cycle approach and the growth cycle approach. The classical cycle approach considers the evolution of the level of economic activity in comprehensive manner with its trend, while the growth approach focuses exclusively on the evolution of the cyclical component of the indicator or indicators used, in complete disregard of the trend component.

 

What is the approach of the Mexico Business Cycles Dating Committee?

The Committee conducts its analyses from the perspective of the classical cycle approach. It does so because it considers that it is more intuitive, makes more practical sense, connects more directly with the experiences of the population, is more relevant to public policy and facilitates empirical analysis from different methodological routes.

 

Why do Cycle Dating Committees exist?

Because there is no consensus methodology robust enough to make a proper identification of turning points, so this process has often relied on expert committees.

Since the economic cycle is a non-observable phenomenon, there are alternative approaches (algorithms, econometric methods, macroeconomic analysis, sectorial economic analysis and multivariate analysis) to identify its phases. The dating committees make use of these approaches.

 

What is the Mexican Business Cycles Dating Committee?

The Mexican Business Cycles Dating Committee (CFCEM, by its initials in Spanish) is an entity that identifies the phases of the Mexican business cycles. It is independent and operates under the patronage of the Mexican Institute of Finance Executives (IMEF, by its initials in Spanish). It is comprised of seven specialists of the highest technical level.

 

What does the Mexican Business Cycles Dating Committee do?

The Mexican Business Cycles Dating Committee (CFCEM) primary goal is to identify the expansions and recessions of business cycles.

 

When was the Committee created?

On February 3, 2021, the Mexican Business Cycles Dating Committee (CFCEM) was created under the shelter of the Mexican Institute of Finance Executives (IMEF) and with the technical support of the National Institute of Statistics and Geography (INEGI, by its initials in Spanish).

 

Are there similar committees in other countries?

Yes, some of them are in the United States of America, the Eurozone, Spain, Japan, Russia, Canada, Brazil and France.

 

What are the variables and tools used by the Committee to identify business cycles?

The CFCEM's analyses are mainly, but not exclusively, based on monthly time series, made possible by various indicators published by INEGI, such as the Total Economic Activity Indicator (IGAE, by its initials in Spanish), total and disaggregated in each of its 15 sub-sectors, the System of Cyclical Coincident and Advance Indicators (SICCA, by its initials in Spanish) and its components, which in addition to the IGAE include the Indicator of Physical Volume of Industrial Activity, the Number of Permanently Insured Persons of the Mexican Social Security Institute, the Index of Net Retail Sales in Commercial Establishments and the Partial Occupancy and Unemployment Rate. The Committee also relies on information from the State Economic Activity Indicator (ITAEE, by its initials in Spanish) and variables from the Cyclical Indicators System (SIC, by its initials in Spanish), such as the Urban Unemployment Rate and Total Imports (in addition to a set of variables in common with the SICCA). Likewise, when deemed necessary, CFCEM takes into consideration other economic variables related to aggregate demand like foreign trade or public finances, when these can provide contextual elements to support decisions regarding the location in time of the turning points.

To support its work, the Committee goes beyond the cyclical indicators offered by INEGI and uses various multivariate statistical techniques, as well as the economic analysis of the time series available for the variables of interest. In its cycle dating process, the Committee focuses on identifying the beginning and end of each recession, so that the intervals corresponding to the expansions are obtained as a complement.

Regarding the methodologies, the Committee decided to use statistical and econometric methods for the identification of cycles such as dating algorithms, dynamic factor models, with sectorial and regional considerations.

 

Where does the Committee obtain the economic series it uses to identify cycles?

The CFCEM's analyses are mainly, but not exclusively, based on monthly time series, for which it uses various indicators published by INEGI, the Mexican Social Security Institute and the Bank of Mexico, among other sources.

 

Why were the cycles dated from 1980 but not earlier?

The cycle dating work is dependent on the monthly information available. Given that the Committee has proposed itself to report turning points for specific months, it implies the need to have statistical series with a monthly frequency. In this regard, the Committee is in a reasonable position to carry out the dating from 1980 onwards, given the availability of monthly and quarterly series of economic activity

 

Why doesn't the Committee pronounce itself on the causes of recessions and the implementation of economic policy?

Because Committee’s goal is to identify the turning points of business cycles and it is up to the individuals and institutions to link the dates offered by the Committee with the contextual and causal elements they consider most appropriate.

 

Who have been members of the Committee?

• GRACIELA GONZÁLEZ FARÍAS (2021-2023)
  • PhD from North Carolina State University, specialist in Multivariate Analysis, Time Series and Spatial Statistics. SNI III.
• MARÍA DE LOURDES DIECK ASSAD (2021 - )
  • PhD from the University of Texas in Austin, specialist in econometrics, planning, and monetary policy.
• PABLO MEJÍA REYES (2021 - )
  • PhD from the University of Manchester, specialist in applied macroeconomics, growth and economic cycles. SNI III.
• LUIS FONCERRADA PASCAL (2021 - )
  • PhD from the Universidad Autónoma Metropolitana, specialist in Macroeconomics and Fiscal Policy
• GABRIEL CASILLAS OLVERA (2021 - )
  • PhD from Texas A&M University, specialist in econometrics, monetary theory and macroeconomic analysis.
• JONATHAN HEATH CONSTABLE. (2021 - )
  • Ph.D. (ABD) from the University of Pennsylvania, specialist in monetary theory and macroeconomic analysis.
• GERARDO LEYVA PARRA (2021 - )
  • Ph.D. from Cornell University, specialist in statistical measurement, growth and economic development.
• JESSICA ROLDÁN PEÑA (2023 - )
  • Ph.D. from the University of California, Los Angeles, specialist in macroeconomics and international economy.

 

Can the beginning and end dates of the cycles identified by the Committee change?

When the information available is preliminary or insufficient and new information is likely to appear on the horizon that could change its agreements, the Committee usually prefers to wait in order to have the necessary elements and not to rush its decisions. This implies that the Committee will not pronounce itself on potential recessions or recoveries until they are over, so it does not issue preliminary resolutions.

 

How was the Committee constituted?

The immediate antecedent of the CFCEM lies in the “Proposal to Create a Committee for the Dating of Mexico's Economic Cycles”, made by the Technical Group of Experts for the design of a Committee for the Dating of Mexico's Economic Cycles, which was convened by INEGI (https://www.inegi.org.mx/contenidos/investigacion/grupos/doc/GTDCFC_2020.pdf). On December 16, 2020, INEGI and IMEF signed an agreement for IMEF to integrate and install the Committee for the Dating of Mexico's business Cycles. This agreement establishes that:

(1) That there shall be a president and a spokesperson in the Committee’s membership.

(2) That the president of the Committee shall not have the right to vote, remembering that the search for consensus in the Committee's decisions shall be a priority, even if this means postponing decisions in order to wait for more or better information. Voting shall only be used as a last resort.

(3) Without voting rights for the president, the rest of the members of the Committee would total 7 and at least four of them would be academics, so the balance would continue to be maintained with an academic majority, for voting purposes, as indicated in the document: Proposal to create a committee to date business cycles in Mexico.

(4) The Committee's president may always participate in the deliberations of the Committee.

(5) The main role of the president is: a) to lead and coordinate the meetings of the Committee; b) to link the Committee with IMEF and its decision-making bodies for logistical and organizational purposes, taking care of preserving the technical independence of the Committee every time; and c) to accompany the spokesperson in the communication actions of the Committee.

(6) The spokesperson must be a member of the Committee with voting rights and elected from among the members with voting rights.

(7) In the event of a tie in any decision of the Committee, the spokesperson shall have the casting vote for tie-breaking purposes.

(8) The “IMEF” may invite a representative of “INEGI” to participate in the sessions. 

 

How are Committee members selected?

The initial selection of the Committee members was made by the IMEF presidency and subsequent changes are decided by the Committee itself.

 

How often are Committee meetings held?

Twice a year, at least. However, meetings may be more frequent when it is decided that economic circumstances are such that they require it.

 

How long after a recession begins does the Committee rule on it?

There is no definite time frame. In this sense, the Committee's determinations are made based on solid evidence, from which discussions are established in which different arguments are presented until consensus or majority agreements are reached, and only pronounces on cycle phases for which sufficient and definitive information is available.

 

References.

Achuthan, Lakshman y Anirvan Banerji (2004). Beating the business cycle: How to predict and profit from turning points in the Economy. New York, NY: Doubleday (a division of Random House).

Bry, Gerhard y Charlotte Boschan (1971). Cyclical analysis of Time Series: Selected procedures and computer programs. Cambridge, MA: NBER.

Burns, Arthur F. y Wesley C. Mitchell (1946). Measuring business cycles, Nueva York, National Bureau of Economic Research, 1946.

Harding, Don y Adrian Pagan (1999). “Dyssecting the cycle: A methodological investigation”. Journal of Monetary Economics, 49(2), pp. 365-81.

Shiskin, Julius (1974). “The changing business cycle”. New York Times, December 1, 1974, New York, NY.

 

Last revised: April 16, 2024.