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Misleading indicators? Using the composite leading indicators to predict cyclical turning points

Listed author(s):
  • Evan F. Koenig
  • Kenneth M. Emery

The U.S. Department of Commerce composite index of leading indicators (CLI) is a widely cited and influential economic series. In this article, Evan F. Koenig and Kenneth M. Emery examine how well movements in the CLI predict business-cycle turning points. Using data that actually would have been available to a forecaster, Koenig and Emery find that the CLI has provided no reliable advance warning of recessions and expansions. Further, in interpreting movements in the CLI, simple rules of thumb have often performed as well as more sophisticated forecasting methodologies. ; While the evidence in this article indicates that the CLI may provide little or no advance warning of business-cycle turning points, the authors emphasize that the CLI may still give the earliest available indication of a change in the economy's direction.

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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1991)
Issue (Month): Jul ()
Pages: 1-14

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Handle: RePEc:fip:fedder:y:1991:i:jul:p:1-14
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