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The Composite Index of Leading Economic Indicators: How to Make It More Timely

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  • Robert H. McGuckin
  • Ataman Ozyildirim
  • Victor Zarnowitz

Abstract

A major shortcoming of the U.S. leading index is that it does not use the most recent information for stock prices and yield spreads. The index methodology ignores these data in favor of a time-consistent set of components (i.e., all of the components must refer to the previous month). An alternative is to bring the series with publication lags up-to-date with forecasts and create an index with a complete set of most recent components. This study uses tests of ex-ante predictive ability of the U.S. leading index to evaluate the gains to this new 'hot box' procedure of statistical imputation. We find that, across a variety of simple forecasting models, the new approach offers substantial improvements.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8430.

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Date of creation: Aug 2001
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Handle: RePEc:nbr:nberwo:8430

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  1. James H. Stock & Mark W. Watson, 1998. "Business Cycle Fluctuations in U.S. Macroeconomic Time Series," NBER Working Papers 6528, National Bureau of Economic Research, Inc.
  2. Victor Zarnowitz, 1980. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc.
  3. Granger, Clive W. J. & King, Maxwell L. & White, Halbert, 1995. "Comments on testing economic theories and the use of model selection criteria," Journal of Econometrics, Elsevier, Elsevier, vol. 67(1), pages 173-187, May.
  4. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  5. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers, Harvard - J.F. Kennedy School of Government 178d, Harvard - J.F. Kennedy School of Government.
  6. Swanson, N.R., 1996. "Forecasting Economic Time series Using Adaptive Versus Nonadaptive and Linecar Versus Nonlinear Econometric Models," Papers, Pennsylvania State - Department of Economics 4-96-2, Pennsylvania State - Department of Economics.
  7. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," The Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January.
  8. Swanson, Norman R. & White, Halbert, 1997. "Forecasting economic time series using flexible versus fixed specification and linear versus nonlinear econometric models," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(4), pages 439-461, December.
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Cited by:
  1. Dagum, Estela Bee, 2010. "Business Cycles and Current Economic Analysis/Los ciclos económicos y el análisis económico actual," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 28, pages 577-594, Diciembre.
  2. Agne Reklaite, 2011. "Coincident, leading and recession indexes for the Lithuanian economy," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 91-108, July.
  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. Joannes Mongardini & Tahsin Saadi-Sedik, 2003. "Estimating Indexes of Coincident and Leading Indicators," IMF Working Papers 03/170, International Monetary Fund.
  5. Michael Meow-Chung Yap, 2009. "Assessing Malaysia’s Business Cycle indicators," Development Research Unit Working Paper Series, Monash University, Department of Economics 04-09, Monash University, Department of Economics.
  6. Rafal Kasperowicz, 2010. "Identification of Industrial Cycle Leading Indicators Using Causality Test," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 2, pages 47-59.
  7. Kajal Lahiri & Herman O. Stekler & Wenxiong Yao & Peg Young, 2003. "Monthly Output Index for the U.S. Transportation Sector," Discussion Papers 03-12, University at Albany, SUNY, Department of Economics.
  8. Andrew Filardo, 2004. "The 2001 US recession: what did recession prediction models tell us?," BIS Working Papers 148, Bank for International Settlements.

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