The Ifo Business-Cycle Clock: A precision instrument for the analysis of the economy

The Ifo Business Climate, the most important indicator for economic activity in Germany, is defined as a mean value of the two components of "current business situation" and "business expectations for the next six months". In 1993 the Ifo Institute presented for the first time the cyclical connection between the two components of the business climate in a four-quadrant economic-activity scheme: the Ifo Business-Cycle Clock. Unlike the usual depiction of indicators along a time axis, the economic activity in this diagram - visualized as a situation/expectation graph - moves clockwise in a circular form, since the expectation indicator leads the current situation indicator. This article examines the most important qualities of the Ifo Business-Cycle Clock.