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Leading Indicators of Euroland Business Cycles

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Author Info

  • Ulrich Fritsche

    (German Institute for Economic Research DIW Berlin)

  • Felix Marklein

    (Humboldt University Berlin)

Abstract

The introduction of a common monetary policy in eleven European countries increased the need for leading indicators for that area. A reliable leading indicator should possess the following properties: (1) The movements in the indicator series should resemble those in the business cycle reference series. (2) The relation between the reference series and the indicator should be statistically significant and stable over time. (3) The inclusion of the indicator in out-of-sample forecasting procedures should improve the predictive power. Our analysis deals with tests for these requirements applied to Euroland data. We use frequency domain analysis, Granger-causality tests and out-of sample forecasts. Only a few indicators pass all tests, while the non-monetary indicators perform best.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0012021.

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Length: 33 pages
Date of creation: 28 Feb 2001
Date of revision:
Handle: RePEc:wpa:wuwpma:0012021

Note: Type of Document - PDF; prepared on IBM PC; pages: 33 ; figures: included. We would like to reduce our mailing and xerox cost by posting it.
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Related research

Keywords: Business Cycle; Leading Indicators; EMU; Eurozone; Euroland;

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References

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  1. Ulrich Fritsche & Sabine Stephan, 2000. "Leading Indicators of German Business Cycles: An Assessment of Properties," Discussion Papers of DIW Berlin 207, DIW Berlin, German Institute for Economic Research.
  2. Davis, E Philip & Fagan, Gabriel, 1997. "Are Financial Spreads Useful Indicators of Future Inflation and Output Growth in EU Countries?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 701-14, Nov.-Dec..
  3. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
  4. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  5. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July.
  6. Erich Langmantel, 1999. "Das ifo Geschäftsklima als Indikator für die Prognose des Bruttoinlandsprodukts," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 52(16-17), pages 16-21, October.
  7. Laidler, David, 1999. "The Quantity of Money and Monetary Policy," Working Papers 99-5, Bank of Canada.
  8. Langfeldt, Enno, 1994. "Die Zinsstruktur als Frühindikator für Konjunktur und Preisentwicklung in Deutschland," Kiel Working Papers 615, Kiel Institute for the World Economy.
  9. Norbert Funke, 1997. "Predicting recessions: Some evidence for Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(1), pages 90-102, March.
  10. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
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Cited by:
  1. Radoslaw Kurach, 2012. "Stocks, Commodities and Business Cycle Fluctuations – Seeking the Diversification Benefits," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 7, pages 101-116.

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