Manufacturing Earnings and Cycles: New Evidence



We now turn to the concepts of phase shift and dynamic correlation. Iden-
tifying lead-lag relationship between the series
Yf and Xf in time domain is
carried out using the cross correlations at lags
τ = ±1, ±2,. . . ,. In contrast,
in the frequency domain, this can be achieved frequency by frequency using
the
cross spectrum. The cross spectrum, which is the Fourier transform of the
covariance function of
Yf and Xf, is given by

f2,x(ω) = cyx(ω) - iqyx(ω),                        (5)

where cyx(ω) is the cospectrum and ‰-(ω) is the quadrature spectrum. It can
be used to derive the
phase spectrum defined as

φyx(ω) = - arctan(<⅛(ω)∕⅛(ω)).                (6)

The phase spectrum at frequency ω measures the lead of the cyclical compo-
nent of
Yf at this frequency over the corresponding component of Xf. It can
be interpreted as the negative of the angle which would transform the compo-
nent in
Xf into the best linear approximation of Yf. To facilitate an intuitive



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