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A New Composite Index of Coincident Economic Indicators in Japan: How can we improve the forecast performance?

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Author Info
Shin-ichi Fukuda (Faculty of Economics, Universtiy of Tokyo)
Takashi Onodera (Nihon Keizai Shimbun, Inc.)

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Abstract

The purpose of this paper is to construct a new composite index of coincident economic indicators in Japan and to demonstrate their usefulness in forecasting recent short-run economic fluctuations. The method of construction is based on the single-index dynamic factor model. Our two types of indexes are highly correlated with the traditional composite index compiled by the EPA over business-cycle horizons. However, standard leading indicators, which failed to forecast the traditional composite index, make a satisfactory performance in forecasting our indexes in the 1990s. In addition, lagged values of our indexes help to improve the leading indicatorsf performance in forecasting the traditional composite index in the 1990s. The result is noteworthy because a large number of research institutes made serious errors in forecasting recent recessions in Japan.

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File URL: http://www.e.u-tokyo.ac.jp/cirje/research/dp/2001/2001cf101.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-101.

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Length: 34 pages
Date of creation: Jan 2001
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Handle: RePEc:tky:fseres:2001cf101

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  1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November. [Downloadable!] (restricted)
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  2. James H. Stock & Mark W. Watson, 1988. "A Probability Model of The Coincident Economic Indicators," NBER Working Papers 2772, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. 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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  4. Kanoh, Satoru, 1990. "Statistical reconsideration of the epa diffusion index," Journal of the Japanese and International Economies, Elsevier, vol. 4(2), pages 139-156, June. [Downloadable!] (restricted)
  5. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February. [Downloadable!] (restricted)
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  6. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
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(explanations, 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. Stefan Gerlach & Matthew S. Yiu, 2004. "A Dynamic Factor Model for Current-Quarter Estimates of Economic Activity in Hong Kong," Working Papers 162004, Hong Kong Institute for Monetary Research. [Downloadable!]
  2. Konstantin A., Kholodilin, 2003. "Identifying and Forecasting the Turns of the Japanese Business Cycle," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  3. Hansson, Jesper & Jansson, Per & Löf, Mårten, 2003. "Business Survey Data: Do They Help in Forecasting the Macro Economy?," Working Paper Series 151, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  4. Tak-Kuen Siu & Wai-Ki Ching & Eric Fung & Michael Ng, 2005. "Extracting Information from Spot Interest Rates and Credit Ratings using Double Higher-Order Hidden Markov Models," Computational Economics, Springer, vol. 26(3), pages 69-102, November. [Downloadable!] (restricted)
    Other versions:
  5. Mototsugu Shintani, 2003. "Nonlinear Analysis of Business Cycles Using Diffusion Indexes: Applications to Japan and the U.S," Levine's Bibliography 506439000000000168, UCLA Department of Economics. [Downloadable!]
  6. Mototsugu Shintani, 2003. "Nonlinear Forecasting Analysis Using Diffusion Indexes: An Application to Japan," Working Papers 0322, Department of Economics, Vanderbilt University, revised Apr 2004. [Downloadable!]
    Other versions:
  7. Alain N. Kabundi, 2004. "Estimation of Economic Growth in France Using Business Survey Data," IMF Working Papers 04/69, International Monetary Fund. [Downloadable!]
  8. Avanzini, Diego B., 2009. "Designing Composite Entrepreneurship Indicators: An Application Using Consensus PCA," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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