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

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Author Info
Robert H. McGuckin
Ataman Ozyildirim
Victor Zarnowitz

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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  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. [Downloadable!] (restricted)
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  2. Swanson, N.R., 1996. "Forecasting Economic Time series Using Adaptive Versus Nonadaptive and Linecar Versus Nonlinear Econometric Models," Papers 4-96-2, Pennsylvania State - Department of Economics.
  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, vol. 67(1), pages 173-187, May. [Downloadable!] (restricted)
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  4. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
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  5. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
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  6. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January. [Downloadable!] (restricted)
  7. Victor Zarnowitz, 1982. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  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, vol. 13(4), pages 439-461, December. [Downloadable!] (restricted)
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  1. 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. [Downloadable!]
  2. Tahsin Saadi-Sedik & Joannes Mongardini, 2003. "Estimating Indexes of Coincident and Leading Indicators: An Application to Jordan," IMF Working Papers 03/170, International Monetary Fund. [Downloadable!]
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