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Why The Composite Index Of Leading Indicators Does Not Lead

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  • EVAN F. KOENIG
  • KENNETH M. EMERY

Abstract

"This paper assesses the real-time performance of the Commerce Department's composite index of leading indicators. The authors find that the composite leading index has failed to provide reliable advance warning of cyclical turning points. One reason for this failure is that the leading index's transition from expansion to contraction generally is not very sharp. Consequently, discerning real-time cyclical peaks in the index is difficult. Transitions from contraction to expansion on average are sharp. However, cyclical troughs in the leading index often precede cyclical troughs in the economy by only a few months. Thus, even timely recognition of troughs in the leading index fails to provide advance warning of turnarounds in the general level of economic activity". Copyright 1994 Western Economic Association International.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7287.1994.tb00412.x
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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 12 (1994)
Issue (Month): 1 (01)
Pages: 52-66

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Handle: RePEc:bla:coecpo:v:12:y:1994:i:1:p:52-66

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Cited by:
  1. Frank Berger & Keith R. Phillips, 1994. "The disappearing January blip and other state employment mysteries," Working Papers 9403, Federal Reserve Bank of Dallas.
  2. Evan F. Koenig, 1994. "Capacity utilization and the evolution of manufacturing output: a closer look at the "bounce-back effect."," Working Papers 9402, Federal Reserve Bank of Dallas.
  3. Franklin D. Berger & Keith R. Phillips, 1994. "Solving the mystery of the disappearing January blip in state employment data," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 53-62.
  4. Gregory W. Huffman, 1994. "A primer on the nature of business cycles," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 27-41.
  5. Andrew Filardo, 2004. "The 2001 US recession: what did recession prediction models tell us?," BIS Working Papers 148, Bank for International Settlements.
  6. Keith R. Phillips & Lucinda Vargas & Victor Zarnowitz, 1996. "New tools for analyzing the Mexican economy: indexes of coincident and leading economic indicators," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II.

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