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A More Timely and Useful Index of Leading Indicators

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Author Info

  • Robert H. McGuckin

    (The Conference Board)

  • Ataman Ozyildirim

    ()
    (The Conference Board)

  • Victor Zarnowitz

    ()
    (The Conference Board)

Abstract

Effectively predicting cyclical movements in the economy is a major challenge. While there are other approaches to forecasting, the U.S. leading index has long been used to analyze and predict economic fluctuations. We describe and test a new procedure for making the index more timely. The new index significantly outperforms its less timely counterpart and offers substantial gains in real-time out-of-sample forecasts of changes in aggregate economic activity and industrial production. It provides timely and accurate ex-ante information for predicting, not only the business cycle turning points, but the monthly changes in the economy.

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File URL: http://www.conference-board.org/economics/workingpapers.cfm?pdf=E-0010-03-WP
File Function: Revised version, 2003
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Bibliographic Info

Paper provided by The Conference Board, Economics Program in its series Economics Program Working Papers with number 03-01.

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Length: 37 pages
Date of creation: Feb 2003
Date of revision:
Publication status: Published in Journal of Business & Economic Statistics, Vol. 25, No. 1, January 2007, pp. 110-20.
Handle: RePEc:cnf:wpaper:0301

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Related research

Keywords: business cycle; forecasting; indicators; leading index; times series;

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References

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  1. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, July.
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Citations

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Cited by:
  1. Henk C. Kranendonk & Jan Bonenkamp & Johan P. Verbruggen, 2004. "A Leading Indicator for the Dutch Economy – Methodological and Empirical Revision of the CPB System," CESifo Working Paper Series 1200, CESifo Group Munich.
  2. Bouwman, Kees E. & Jacobs, Jan P.A.M., 2005. "Forecasting with real-time macroeconomic data: the ragged-edge problem and revisions," CCSO Working Papers 200505, University of Groningen, CCSO Centre for Economic Research.
  3. Heij, C. & van Dijk, D.J.C. & Groenen, P.J.F., 2009. "Macroeconomic forecasting with real-time data: an empirical comparison," Econometric Institute Research Papers EI 2009-27, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  4. S. Boragan Aruoba & Francis X. Diebold & Chiara Scotti, 2008. "Real-Time Measurement of Business Conditions," NBER Working Papers 14349, National Bureau of Economic Research, Inc.
  5. Petreski, Marjan, 2013. "Assessing the forecasting power of the leading composite index in Macedonia," MPRA Paper 49433, University Library of Munich, Germany.
  6. Paap, Richard & Segers, Rene & van Dijk, Dick, 2009. "Do Leading Indicators Lead Peaks More Than Troughs?," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 528-543.
  7. A. Girardi & R. Golinelli & C. Pappalardo, 2014. "The Role of Indicator Selection in Nowcasting Euro Area GDP in Pseudo Real Time," Working Papers wp919, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Heij, Christiaan & van Dijk, Dick & Groenen, Patrick J.F., 2011. "Real-time macroeconomic forecasting with leading indicators: An empirical comparison," International Journal of Forecasting, Elsevier, vol. 27(2), pages 466-481, April.
  9. Robert H. McGuckin & Ataman Ozyildirim, 2003. "Real-Time Tests of the Leading Economic Index: Do Changes in the Index Composition Matter?," Economics Program Working Papers 03-04, The Conference Board, Economics Program.
  10. van Dijk, D.J.C. & Franses, Ph.H.B.F. & Ravazzolo, F., 2007. "Evaluating real-time forecasts in real-time," Econometric Institute Research Papers EI 2007-33, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  11. Henk Kranendonk & Jan Bonenkamp & Johan Verbruggen, 2004. "A leading indicator for the Dutch economy; methodological and empirical revision of the CPB system," CPB Discussion Paper 32, CPB Netherlands Bureau for Economic Policy Analysis.

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