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This is what the leading indicators lead

  • Maximo Camacho

    (Universidad de Murcia, Facultad de Economia y Empresa, 30100, Murcia, Spain)

  • Gabriel Perez-Quiros

    (Oficina de Estudios Monetarios y Financieros, Unidad de Investigacion, Servicio de Estudios, Banco de Espana, Alcala 50, 28014 Madrid, Spain)

We propose an optimal filter to transform the Conference Board Composite Leading Index (CLI) into recession probabilities in the US economy. We also analyse the CLI's accuracy at anticipating US output growth. We compare the predictive performance of linear, VAR extensions of smooth transition regression and switching regimes, probit, non-parametric models and conclude that a combination of the switching regimes and non-parametric forecasts is the best strategy at predicting both the NBER business cycle schedule and GDP growth. This confirms the usefulness of CLI, even in a real-time analysis. Copyright © 2002 John Wiley & Sons, Ltd.

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File URL: http://qed.econ.queensu.ca:80/jae/2002-v17.1/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 17 (2002)
Issue (Month): 1 ()
Pages: 61-80

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Handle: RePEc:jae:japmet:v:17:y:2002:i:1:p:61-80
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  1. Lobato, Ignacio N & Robinson, Peter M, 1998. "A Nonparametric Test for I(0)," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 475-95, July.
  2. Hess, Gregory D & Iwata, Shigeru, 1997. "Measuring and Comparing Business-Cycle Features," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(4), pages 432-44, October.
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  16. Hamilton, James D & Perez-Quiros, Gabriel, 1996. "What Do the Leading Indicators Lead?," The Journal of Business, University of Chicago Press, vol. 69(1), pages 27-49, January.
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