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Leading Indicators for Euro-area Inflation and GDP Growth

  • Anindya Banerjee
  • Massimiliano Marcellino
  • Igor Masten

In this paper, we evaluate the role of a set of variables as leading indicators for Euro-area inflation and GDP growth. Our leading indicators are taken from the variables in the European Central Bank's (ECB) Euro-area-wide model database, plus a set of similar variables for the US. We compare the forecasting performance of each indicator "ex post" with that of purely autoregressive models. We also analyse three different approaches to combining the information from several indicators. First, "ex post", we discuss the use as indicators of the estimated factors from a dynamic factor model for all the indicators. Secondly, within an "ex ante" framework, an automated model selection procedure is applied to models with a large set of indicators. No future information is used, future values of the regressors are forecast, and the choice of the indicators is based on their past forecasting records. Finally, we consider the forecasting performance of groups of indicators and factors and methods of pooling the "ex ante" single-indicator or factor-based forecasts. Some sensitivity analyses are also undertaken for different forecasting horizons and weighting schemes of forecasts to assess the robustness of the results. Copyright 2005 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0084.2005.00141.x
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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 67 (2005)
Issue (Month): s1 (December)
Pages: 785-813

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Handle: RePEc:bla:obuest:v:67:y:2005:i:s1:p:785-813
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