Measuring global real economic activity: Do recent critiques hold up to scrutiny?

Hamilton (2018) suggests that the Kilian (2009) index of global real economic activity is misleading and calls for alternative measures. The problems documented by Hamilton are a consequence of a coding mistake in the computation of the original index. Specifically, the nominal freight rates underlying the Kilian index were accidentally logged twice. Once this coding error is corrected by removing one of the log transformations, none of the concerns raised by Hamilton remains valid and the index may be used as originally intended. Moreover, it can be shown that the corrected index differs only slightly from the original index and that the key empirical results in Kilian (2009) and related studies remain unchanged when replacing the index.