IDEAS home Printed from
   My bibliography  Save this article

Fundamentals versus the leading index-the forecasting of Canada's output growth since 1991: an encompassing approach


  • Akhter Faroque
  • William Veloce


We evaluate the ability of Statistics Canada's Composite Leading Index to forecast Canada's real Gross Domestic Product (GDP) growth rate in the backdrop of the Duguay (1994, JME) model and also the dynamic and the error-correction variants of the Duguay model, that already include the 'fundamentals' of the Canadian business cycle. The results show that integrating the index in these models substantially improve the in-sample fit of the models and also provide an explanation for the 'perplexingly' large influence of the US real GDP on aggregate spending in the Canadian economy. Out-of-sample forecasts over the inflation-targeting regime (January 1991-April 2004), evaluated using the forecast encompassing tests, confirm that the index contains an important amount of new information about the future growth rate, quite apart from the information contained in the fundamentals.

Suggested Citation

  • Akhter Faroque & William Veloce, 2010. "Fundamentals versus the leading index-the forecasting of Canada's output growth since 1991: an encompassing approach," Applied Economics, Taylor & Francis Journals, vol. 42(10), pages 1227-1243.
  • Handle: RePEc:taf:applec:v:42:y:2010:i:10:p:1227-1243
    DOI: 10.1080/00036840701721364

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Yi Zheng & James Rossiter, 2006. "Using Monthly Indicators to Predict Quarterly GDP," Staff Working Papers 06-26, Bank of Canada.
    2. Victor Zarnowitz & Phillip Braun, 1989. "Major Macroeconomic Variables and Leading Indexes: Some Estimates of Their Interrelations, 1886-1982," NBER Working Papers 2812, National Bureau of Economic Research, Inc.
    3. Alexandre Debs, 2001. "Testing for a Structural Break in the Volatility of Real GDP Growth in Canada," Staff Working Papers 01-9, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:42:y:2010:i:10:p:1227-1243. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.