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Measuring global real economic activity: Do recent critiques hold up to scrutiny?

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  • Kilian, Lutz

Abstract

Hamilton (2018) suggests that the Kilian (2009) index of global real economic activity is misleading and calls for alternative measures. The problems documented by Hamilton are a consequence of a coding mistake in the computation of the original index. Specifically, the nominal freight rates underlying the Kilian index were accidentally logged twice. Once this coding error is corrected by removing one of the log transformations, none of the concerns raised by Hamilton remains valid and the index may be used as originally intended. Moreover, it can be shown that the corrected index differs only slightly from the original index and that the key empirical results in Kilian (2009) and related studies remain unchanged when replacing the index.

Suggested Citation

  • Kilian, Lutz, 2019. "Measuring global real economic activity: Do recent critiques hold up to scrutiny?," Economics Letters, Elsevier, vol. 178(C), pages 106-110.
  • Handle: RePEc:eee:ecolet:v:178:y:2019:i:c:p:106-110
    DOI: 10.1016/j.econlet.2019.03.001
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    References listed on IDEAS

    as
    1. Lutz Kilian, 2017. "The Impact of the Fracking Boom on Arab Oil Producers," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    2. Robin Greenwood & Samuel G. Hanson, 2015. "Waves in Ship Prices and Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 130(1), pages 55-109.
    3. Valentina G. Bruno & Bahattin Büyükşahin & Michel A. Robe, 2017. "The Financialization of Food?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(1), pages 243-264.
    4. Kilian, Lutz & Zhou, Xiaoqing, 2018. "Modeling fluctuations in the global demand for commodities," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 54-78.
    5. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    6. Xiaoqing Zhou, 2019. "Refining the Workhorse Oil Market Model," Working Papers 1910, Federal Reserve Bank of Dallas.
    7. Lutz Kilian & Bruce Hicks, 2013. "Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(5), pages 385-394, August.
    8. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Global business cycle; Shipping; Commodity market; Oil; Log transformation;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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