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Composite Leading Indicators for Ukraine: An Early Warning Model

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  • Vladimir Dubrovskiy
  • Inna Golodniuk
  • Janusz Szyrmer
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    Abstract

    The project has undertaken the following tasks: Based on an analysis of the pattern of growth of the Ukrainian economy since the end of the post-Soviet recession (the year 2000) we have formulated the hypotheses concerning the factors preceding/affecting the upturns and downturns (with a focus on the latter) of the country’s growth; We have studied international “best practice” in early warning indicators in order to design a similar system for Ukraine; We have selected the relevant indicators, consistent with our hypotheses and used a probit model in order to experiment with these indicators; The final set of indicators used in the model included the following lagged independent variables: changes in the value of export, changes in real Exchange rate of the hryvnya, producers’ price index adjusted for domestic price inflation index and the IMF’s metal price index, bank credit interest rate, changes in the industrial output of the European Union; our dependent variable (which was used as a proxy for the overall economic growth) was changes in real industrial output; The model was used to formulate a warning forecast for the Ukrainian economy for the second half of 2008 based on the data for the January 2000 – June 2008 period; all predictions for the second half of 2008 have delivered warning about a downturn of the Ukrainian economy; We ran a few additional experiments with the model, and We have recommended several further steps of analysis toward a full implementation and institutionalization of such a model in the near future.

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    Bibliographic Info

    Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Reports with number 0085.

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    Length: 62 Pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:sec:cnrepo:0085

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    Related research

    Keywords: business cycle; forecasting; econometric model; Ukraine; Ukrainian economy; economic growth; GDP; early warning indicator;

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    References

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    1. Henri Bernard & Stefan Gerlach, 1996. "Does the term structure predict recessions? The international evidence," BIS Working Papers 37, Bank for International Settlements.
    2. North, Douglass C. & Wallis, John Joseph & Webb, Steven B. & Weingast, Barry R., 2007. "Limited access orders in the developing world :a new approach to the problems of development," Policy Research Working Paper Series 4359, The World Bank.
    3. Moneta, Fabio, 2003. "Does the yield spread predict recessions in the euro area?," Working Paper Series, European Central Bank 0294, European Central Bank.
    4. Arturo Estrella & Frederic S. Mishkin, 1995. "Predicting U.S. Recessions: Financial Variables as Leading Indicators," NBER Working Papers 5379, National Bureau of Economic Research, Inc.
    5. Michael Dueker, 2005. "Dynamic Forecasts of Qualitative Variables: A Qual VAR Model of U.S. Recessions," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 23, pages 96-104, January.
    6. Michael Dueker, 1997. "Strengthening the case for the yield curve as a predictor of U.S. recessions," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Mar, pages 41-51.
    7. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
    8. Joannes Mongardini & Tahsin Saadi-Sedik, 2003. "Estimating Indexes of Coincident and Leading Indicators," IMF Working Papers 03/170, International Monetary Fund.
    9. Henri Nyberg, 2010. "Dynamic probit models and financial variables in recession forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 29(1-2), pages 215-230.
    10. Everhart, Stephen S. & Duval-Hernandez, Robert, 2000. "Leading indicator project - Lithuania," Policy Research Working Paper Series 2365, The World Bank.
    11. Douglass C North & John Joseph Wallis & Barry R. Weingast, 2006. "A Conceptual Framework for Interpreting Recorded Human History," NBER Working Papers 12795, National Bureau of Economic Research, Inc.
    12. N. Valckx & M.J.K.de Ceuster & J. Annaert, 2003. "Is Financial Market Volatility Informative to Predict Recessions?," DNB Staff Reports (discontinued), Netherlands Central Bank 93, Netherlands Central Bank.
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