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Misleading indicators? Using the composite leading indicators to predict cyclical turning points

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Author Info

  • Evan F. Koenig
  • Kenneth M. Emery

Abstract

The U.S. Department of Commerce composite index of leading indicators (CLI) is a widely cited and influential economic series. In this article, Evan F. Koenig and Kenneth M. Emery examine how well movements in the CLI predict business-cycle turning points. Using data that actually would have been available to a forecaster, Koenig and Emery find that the CLI has provided no reliable advance warning of recessions and expansions. Further, in interpreting movements in the CLI, simple rules of thumb have often performed as well as more sophisticated forecasting methodologies. ; While the evidence in this article indicates that the CLI may provide little or no advance warning of business-cycle turning points, the authors emphasize that the CLI may still give the earliest available indication of a change in the economy's direction.

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Bibliographic Info

Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1991)
Issue (Month): Jul ()
Pages: 1-14

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Handle: RePEc:fip:fedder:y:1991:i:jul:p:1-14

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Related research

Keywords: Economic indicators ; Business cycles;

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Cited by:
  1. Chan G. Huh, 1991. "Recession probability indexes: a survey," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 31-40.
  2. Adriana Z. Fernandez & Alex Nikolsko-Rzhevskyy, 2011. "Forecasting the end of the global recession: did we miss the early signs?," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
  3. Kenneth M. Emery & Evan F. Koenig, 1992. "Forecasting turning points: is a two-state characterization of the business cycle appropriate?," Research Paper 9214, Federal Reserve Bank of Dallas.
  4. Frank Berger & Keith R. Phillips, 1994. "The disappearing January blip and other state employment mysteries," Working Papers 9403, Federal Reserve Bank of Dallas.
  5. Roy H. Webb & Tazewell S. Rowe, 1995. "An index of leading indicators for inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 75-96.
  6. Layton, Allan P., 1996. "Dating and predicting phase changes in the U.S. business cycle," International Journal of Forecasting, Elsevier, vol. 12(3), pages 417-428, September.

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