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Quantifying the qualitative responses of the output purchasing managers index in the US and the Euro area

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  • Vermeulen, Philip

Abstract

The survey based monthly US ISM production index and Eurozone manufacturing PMI output index provide early information on industrial output growth before the release of the official industrial production index. I use the Carlson and Parkin probability method to construct monthly growth estimates from the qualitative responses of the US ISM production index and the Eurozone manufacturing PMI output index. I apply the method under different assumptions on the cross-sectional distribution of output growth using the uniform, logistic and Laplace distribution. I show that alternative distribution assumptions lead to very similar estimates. I also test the performance of the different growth estimates in an out of sample forecasting exercise of actual industrial production growth. All growth estimates beat a simple autoregressive model of output growth. Distribution assumptions again matter little most of the time except during the financial crisis when the estimates constructed using the Laplace distributional assumption perform the best. My findings are consistent with recent findings of Bottazzi and Sechi (2006) that the distribution of firm growth rates has a Laplace distribution. JEL Classification: C18, E27

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1417.

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Date of creation: Feb 2012
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Handle: RePEc:ecb:ecbwps:20121417

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Related research

Keywords: Carlson-Parkin method; Diffusion index; forecasting; ISM; PMI; purchasing managers’ surveys; qualitative response data;

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  1. Giannone, Domenico & Henry, Jérôme & Lalik, Magdalena & Modugno, Michele, 2010. "An area-wide real-time database for the euro area," Working Paper Series 1145, European Central Bank.
  2. Kenneth D. West & Todd Clark, 2006. "Approximately Normal Tests for Equal Predictive Accuracy in Nested Models," NBER Technical Working Papers 0326, National Bureau of Economic Research, Inc.
  3. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
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Cited by:
  1. D’Agostino, Antonello & Schnatz, Bernd, 2012. "Survey-based nowcasting of US growth: a real-time forecast comparison over more than 40 years," Working Paper Series 1455, European Central Bank.

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