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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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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