In this paper,we propose a methodology for calculating a leading index of the economic activity based on a modification of Stock and Watson's (1989, 1991, 1992) approach. We use Kalman filter techniques for estimating the state space representation of the leading index model. The methodology is applied to the Colombian economy and the resulting index leads six months the Melo et al. (2002) coincident index (in semi-annual growt rates). As an intermediate result, we also develop an updating process of the coincident index.
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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number
243.
Find related papers by JEL classification: C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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