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This is what the leading indicators lead

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Maximo Camacho & Gabriel Perez-Quiros, 2002. "This is what the leading indicators lead," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-80.
  • Handle: RePEc:jae:japmet:v:17:y:2002:i:1:p:61-80
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    References listed on IDEAS

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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