Current Economic Developments in View of the Ifo Economic Traffic Light

Economic indicators should show the cyclical turning points of economic output reliably and with a statistically significant lead time. It must be constantly assessed whether the monthly change in an indicator signals a change in the economic cycle and thus an economic turning point, or whether it represents a continuation of the current cycle. The estimates provided by Markov-Switching models can provide key information when it comes to decision-making in this respect. The Ifo Business Climate for German trade and industry, the most important early indicator for the German economy, as well as the cyclical probabilities that are estimated based on it, can also be simulated using a Markov-Switching Model and the Ifo traffic light. The Ifo traffic light is currently signalling that the German economy reached an upper turning point in the third quarter of 2011.