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Frequently asked questions about productivity – Growth cycles

What are growth cycles, and why are they important?

A growth cycle is the period between two peaks of output, that is, a ‘peak to peak’ time period. Growth cycles take account of capacity utilisation at the start and end points of a cycle by reflecting the points in time when resources in the economy are most in use. Growth cycles are often called business cycles. Productivity is best analysed between growth cycles. This is because annual movements can be very volatile, and will sometimes be affected by changes in capacity utilisation rather than true productivity growth.

Why do you base your analysis on growth cycles?

Productivity statistics are best analysed across cycles rather than individual years. This is because factors such as capacity utilisation tend to vary from year to year, making it difficult to interpret annual movements. Capacity utilisation is high during times of strong economic growth, but resources become underutilised as economic activity declines. By matching years when capacity utilisation was at its highest, growth cycles compare productivity growth when economic activity was at a maximum.

What was the last complete cycle?

The last complete cycle was from 2000 to 2008. The 2008 period is an incomplete cycle. The statistical methods used by Statistics NZ to determine growth cycles indicated that the last peak was in 2008 as this represented the greatest deviation from the trend in output. The decision to call 2008 a peak is provisional and may be revised as new information becomes available. The growth cycles will be assessed on a year-by-year basis.

How were these growth cycles derived? And why were these particular cycles chosen?

A range of commonly used univariate filters were used to generate cycles within the series, including Hodrick-Prescott, Baxter-King, and the Henderson filter (which is used by the ABS). After carrying out analysis using all three filters, it was determined that the Hodrick-Prescott filter was most appropriate as it did not have the same end-point issues that other filters have. In addition, it is also widely used in business cycle literature.

The starting point of the cycle was the year when capacity utilisation was at its highest (ie the cycles are chosen from 'peak-to-peak'). The final growth cycles were selected by taking into account the economic events that occurred throughout the time period.

How do the results of Statistics NZ growth cycle analysis compare with those from other studies?

Growth cycles estimated by Statistics NZ are based on the 'measured' sector of the economy while other studies focus on the aggregate economy. For detailed comparisons, refer to the technical paper Extracting growth cycles from productivity indexes.

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