Towards a real-time system for the analysis of the euro area cyclical situation : 2016 edition

This paper describes the construction of a real-time monitoring system of the euro area economy by complementing official statistics by advanced statistical and econometric techniques. It also shows how it is possible to build up an effective cyclical early warning system for the euro area by extracting relevant cyclical signals from official statistics by means of linear and non-linear filtering techniques. The construction of both the real-time monitoring and the cyclical early warning system is described in a step by step approach and at each step the results of empirical applications, usually based on real-time simulations, are presented. Despite the fact that improvements are still needed, the proposed applications show that they provide a reliable picture of the current economic situation. They also provide policy makers with stable and non-misleading information about the current cyclical situation.