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Leading Indicators: What Have We Learned?

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  • Marcellino, Massimiliano

Abstract

We provide a summary updated guide for the construction, use and evaluation of leading indicators, and an assessment of the most relevant recent developments in this field of economic forecasting. To begin with, we analyse the problem of selecting a target coincident variable for the leading indicators, which requires coincident indicator selection, construction of composite coincident indexes, choice of filtering methods, and business cycle dating procedures to transform the continuous target into a binary expansion/recession indicator. Next, we deal with criteria for choosing good leading indicators, and simple non-model based methods to combine them into composite indexes. Then, we examine models and methods to transform the leading indicators into forecasts of the target variable. Finally, we consider the evaluation of the resulting leading indicator based forecasts, and review the recent literature on the forecasting performance of leading indicators.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4977.

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Date of creation: Mar 2005
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Handle: RePEc:cpr:ceprdp:4977

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Keywords: business cycles; coincident indicators; forecasting; leading indicators; turning points;

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Cited by:
  1. Aiolfi, Marco & Catão, Luis A. V. & Timmermann, Allan G, 2010. "Common Factors in Latin America’s Business Cycles," CEPR Discussion Papers 7671, C.E.P.R. Discussion Papers.
  2. Sylvia Kaufmann, 2010. "Dating and forecasting turning points by Bayesian clustering with dynamic structure: a suggestion with an application to Austrian data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(2), pages 309-344.
  3. Croce, Roberto M. & Haurin, Donald R., 2009. "Predicting turning points in the housing market," Journal of Housing Economics, Elsevier, vol. 18(4), pages 281-293, December.
  4. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(2), pages 185-202.
  5. Ard den Reijer, 2006. "The Dutch business cycle: which indicators should we monitor?," DNB Working Papers 100, Netherlands Central Bank, Research Department.
  6. Curran, Declan & Funke, Michael, 2006. "Taking the temperature – forecasting GDP growth for mainland China," BOFIT Discussion Papers 6/2006, Bank of Finland, Institute for Economies in Transition.
  7. Allen, P. Geoffrey & Morzuch, Bernard J., 2006. "Twenty-five years of progress, problems, and conflicting evidence in econometric forecasting. What about the next 25 years?," International Journal of Forecasting, Elsevier, vol. 22(3), pages 475-492.
  8. Muriel Nguiffo-Boyom, 2008. "A monthly indicator of Economic activity for Luxembourg," BCL working papers 31, Central Bank of Luxembourg.
  9. Idrovo Aguirre, Byron, 2007. "Los Ciclos del Mercado Inmobiliario y su Relación con los Ciclos de la Economía
    [Housing Market Fluctuations and the Economic Cycles]
    ," MPRA Paper 19365, University Library of Munich, Germany, revised 24 Sep 2007.
  10. Silgoner, Maria Antoinette, 2005. "An Overview of European Economic Indicators: Great Variety of Data on the Euro Area, Need for More Extensive Coverage of the New EU Member States," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 66–89.

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