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Taking the Temperature - Forecasting GDP Growth for Mainland China

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  • Declan Curran

    ()

  • Michael Funke

    ()

Abstract

We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model. Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index. These series are found to share a common, unobservable element from which our indicator can be identified. This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth. Recursive out-of-sample accuracy tests indicate that the small scale factor model approach leads to successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions.

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Bibliographic Info

Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 20606.

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Date of creation: Jun 2006
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Handle: RePEc:ham:qmwops:20606

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Keywords: Forecasting; China; Leading Indicator; Factor Model; Growth Cycles;

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Cited by:
  1. Christian Schulz, 2007. "Forecasting economic growth for Estonia : application of common factor methodologies," Bank of Estonia Working Papers 2007-09, Bank of Estonia, revised 04 Sep 2007.
  2. Mehrotra, Aaron & Rautava, Jouko, 2007. "Do sentiment indicators help to assess and predict actual developments of the Chinese economy?," BOFIT Discussion Papers 11/2007, Bank of Finland, Institute for Economies in Transition.
  3. Christian Schulz, 2008. "Forecasting economic activity for Estonia : The application of dynamic principal component analyses," Bank of Estonia Working Papers 2008-02, Bank of Estonia, revised 30 Oct 2008.

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