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Forecasting malaysian business cycle movement: empirical evidence from composite leading indicator

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  • Wong, Shirly Siew-Ling
  • Abu Mansor, Shazali
  • Puah, Chin-Hong
  • Liew, Venus Khim-Sen

Abstract

Early detection of a turning point in a business cycle is crucial, as information about the changing phases in business cycles enables policy makers, the business community, and investors to cope better with unexpected events brought about by economic and business situations. The Malaysian economy is fortunate to own a publicly accessible composite of leading indicator (CLI) that is presumed capable of tracing the business cycle movement and thus contributes to the creation of an early signaling tool for short-term economic forecasting. Certainly, the usefulness of this CLI in monitoring the contemporary economic and business condition in Malaysia will be empirically appealing to the nation. Even though the present study can display the ability of the Malaysian CLI to trace the business cycle and offers advanced detection of business cycle turning points, the evidence of diminishing lead times foreseen by the CLI significantly weaken the fundamental function of a leading index as an early tool to signal economic vulnerability.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36649.

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Date of creation: Feb 2012
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Handle: RePEc:pra:mprapa:36649

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Keywords: Business Cycle; Composite Leading Indicator; Early Signaling Tool;

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  1. Miroslav Klúcik & Ján Haluška, 2008. "Construction of composite leading indicator for the Slovak economy," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 55, pages 363-370, November.
  2. Wesley C. Mitchell & Solomon Fabricant, 1938. "Statistical Indicators of Cyclical Revivals," NBER Books, National Bureau of Economic Research, Inc, number mitc38-1, October.
  3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  4. Stephen Everhart & Robert Duval-Hernandez, 2001. "Short Term Macro Monitoring: Leading Indicator Construction-Mexico," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0108, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Everhart, Stephen S. & Duval-Hernandez, Robert, 2000. "Leading indicator project - Lithuania," Policy Research Working Paper Series 2365, The World Bank.
  6. Gonzalo, Jesus & Pitarakis, Jean-Yves, 2002. "Estimation and model selection based inference in single and multiple threshold models," Journal of Econometrics, Elsevier, vol. 110(2), pages 319-352, October.
  7. Wolfgang Polasek, 2010. "Dating and Exploration of the Business Cycle in Iceland," Working Paper Series 13_10, The Rimini Centre for Economic Analysis.
  8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  9. Gladys COTRIE & Roland CRAIGWELL & Alain MAURIN, 2009. "Estimating Indexes Of Coincident And Leading Indicators For Barbados," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
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Cited by:
  1. Wong, Shirly Siew-Ling & Puah, Chin-Hong & Abu Mansor, Shazali & Liew, Venus Khim-Sen, 2012. "Early warning indicator of economic vulnerability," MPRA Paper 39944, University Library of Munich, Germany.

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