A Tale of Two Cities: A Business Cycle Index for Midland-Odessa
The purpose of this study is to estimate a coincident index for the Midland-Odessa region using the Stock and Watson (1988) methodology. The model assumes that the co-movements of indicators have a common element that can be summarized as a single underlying and unobservable variable, the “state of the economy” (Stock and Watson, 1988). The model utilizes the Kalman filter smoothing approach which smooths the index across time and across indicators and results in index movements that are less pronounced during expansions and recessions. Indicator series used to estimate the Midland-Odessa BCI are: employment, unemployment rate, real retail sales, and total real wages. The resulting index exhibits movements that are correlated with national contractions and expansions, movements in oil prices, and an existing Midland-Odessa business cycle index.^
Downs, Elisabeth, "A Tale of Two Cities: A Business Cycle Index for Midland-Odessa" (2017). ETD Collection for University of Texas, El Paso. AAI10279600.