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Coincident and leading indicators for the euro area: A frequency band approach

  • Rua, Antonio
  • Nunes, Luis C.

In the context of a common monetary policy, tracking euro area economic developments becomes essential. The aim of this paper is to build monthly coincident and leading composite indicators for the euro area business cycle. However, instead of looking at the overall comovement between the variables as it is standard in the literature, we show how one can resort to both time and frequency domain analysis to achieve additional insight about their relationship. We find that, in general, the lead/lag properties of economic indicators depend on the cycles periodicity. Following a frequency band approach, we take advantage of this in the construction of the coincident and leading composite indicators. The resulting indicators are analysed and a comparison with other composite indicators proposed in the literature is made.

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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 21 (2005)
Issue (Month): 3 ()
Pages: 503-523

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Handle: RePEc:eee:intfor:v:21:y:2005:i:3:p:503-523
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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  1. Mario Forno & Marco Lippi & Lucrezia Reichlin & Filippo Altissimo & Antonio Bassanetti, 2003. "Eurocoin: A Real Time Coincident Indicator Of The Euro Area Business Cycle," Computing in Economics and Finance 2003 242, Society for Computational Economics.
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  4. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  6. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  7. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
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  11. Harding, Don & Pagan, Adrian, 2003. "A comparison of two business cycle dating methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1681-1690, July.
  12. Robert H. McGuckin & Ataman Ozyildirim, 2003. "Real-Time Tests of the Leading Economic Index: Do Changes in the Index Composition Matter?," Economics Program Working Papers 03-04, The Conference Board, Economics Program.
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  15. Harding, Don & Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany.
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