A diffusion index analysis of the Argentinean business economic cycle based on the "Survey of Business Economic Perspectives"

The Central Banks use diffusion indexes (DIs) to synthesize information from proprietary surveys that complement official statistics generating real-time proxies of the economically relevant variables. According to the evidence, the DIs closely follow the economic cycle reflected in those official statistics. In this paper, we calculate diffusion indexes to summarize relevant qualitative information on the economic situation of the firms participating in the Survey of Business Economic Perspectives collected by the Argentinean Central Bank [Banco Central de la República Argentina (BCRA)] and we evaluate their ability to track economic activity in real-time. The indexes are analyzed for the 2017-2022 period, a particularly volatile business cycle for Argentina and (given the impact of Covid-19) for the global economy. Using the qualitative data from the firms we calculate (i) the marginal diffusion index (MDI) proposed by the Federal Reserve Bank of Chicago (FRB-Chicago) and based on the balance of answers corrected by the averaged participant response and, (ii) the marginal fixed diffusion index (MFDI), a real-time variation of the latter. To contrast and validate the indexes' ability to summarize relevant information we introduce an econometric procedure aimed at assessing their relationships with official economic activity indicators. The results indicate that the DIs calculated with the qualitative BCRA's Survey information closely track and even anticipate the behavior of other official activity indicators both for the entire sample of firms and for the industrial sector.