E3 - Prices, Business Fluctuations, and CyclesReturn

The main goal of this paper is to create composite leading indicator for Czech economy and its comparison with composite leading indicators created by OECD and Eurostat. The theoretical part of the paper consists of the methods that are employed for creation composite leading indicator in the world. We compare methods of OECD, Eurostat, Conference Board and the methods of Slovak and Czech authors. The empirical part of the paper is focused on analysis of 120 indicators of Czech economy and their selection on the coincident, lagging and leading indicators. From the group of leading indicators is created new composite leading indicator for Czech economy which can by used on monitoring and short-term prediction of Czech business cycle.

The goal of analysis of business cycle development in the Czech Republic is to identify causes and consequences of economic activity fluctuations in the 1990 to 2003 period. The approach to analysis of economic activity fluctuations is based on this part of business cycle theory which is oriented to the links between macroeconomic equilibrium and economic growth. Description of contexts between changes in the economic environment, nature of the demand and supply side of the economy and a character of external and internal balance provides the economic framework for the analysis. The decomposition of supply and demand to its components enabled the identification of their sensitivity to the business cycle development. Special emphasis is put on the indicators of internal and external balances which signal in advance the possibility of an economic slowdown or a drop in the economic activity.