Nowcasting: Identifying German Cyclical Turning Points

Abstract Historically, forecasters have failed to predict cyclical turning points and the forecasting record in this regard has not improved. This suggests that we should focus on what should be an easier task, recognizing recessions as they occur. We present a new approach that will enable us to determine in real-time when there is a significant deviation from an economy’s dynamic growth path. This approach uses a CUSUM-like methodology and requires us to construct an index,that we call the Economic News Index, from real-time data that shows how the economy is functioning. We apply this approach to German data to nowcast the recessions that began in 2008 and 2012.