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What is the significance and function of business cycle indicators and monitoring indicators?

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Business cycle indicators and monitoring indicators are intended to measure economic situations, where important macroeconomic variables that sufficiently represent economic activities and reflect economic changes are processed and compiled through appropriate statistical methods. The National Development Council has released three types of business cycle indicators, including leading, coincident, and lagging indicators; the monitoring indicators (monitoring lights) have also been released to provide a measure for all sectors when measuring the economic pulse of our country. The significance and functions of the business cycle indicators and monitoring lights are as follows:

1. Leading Indicators

They comprise seven components: diffusion index of export orders (by number of firms), real monetary aggregate M1B, TAIEX average closing price, net accession rate of employees on payrolls of industry and services, total floor area of new housing construction started (residential houses, commercial offices, industrial warehouses), real imports of semiconductor equipment, and the TIER manufacturing sector composite indicator, which are used to predict changes in the future economy. 

2. Coincident Indicators

They comprise seven components: industrial production index, electric power consumption, index of producer’s shipment for manufacturing, sales of trade and food services, nonagricultural employment, real customs-cleared exports, and real machineries electrical equipments imports, which are used to measure current economic situation.

3. Lagging Indicators

They comprise five components: unemployment rate (reciprocal), the manufacturing unit output labor cost index, interbank overnight call-loan rate, loans and investments of financial institutions, and inventory value for manufacturing, which are used to verify economic fluctuations over the past.

4. Monitoring indicators

Monitoring indicators are five different lights similar to traffic signals, which indicate the current economic situation. In particular, “green light” represents stable economy; “red light” represents an economic boom; “blue light” represents sluggish economy; “yellow-red light” and “yellow-blue light” are transitional lights, which suggest that the presence of economic turns be closely observed. Different lights can be used to prompt the government countermeasures to be taken. Changes in the monitoring indicators shall also serve as a reference for determining economic ups and downs. The current monitoring indicators compiled by the National Development Council consist of nine components: monetary aggregate M1B, TAIEX average closing price, industrial production index, nonagricultural employment, customs-cleared exports, the imports of machineries and electrical equipments, index of producer’s shipment for manufacturing, sales of trade and food services, and the TIER manufacturing sector composite indicator.

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