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What Do the Leading Indicators Lead?

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  • Hamilton, James D
  • Perez-Quiros, Gabriel

Abstract

The authors find that the composite leading index (CLI) is useful for forecasting gross national product (GNP), both in sample and in an out-of-sample real-time exercise. They propose a nonlinear specification in which cyclical shifts of the CLI precede those in GNP. However, the authors find that better forecasts are provided by a simple linear relation between current GNP growth and the growth rate of the CLI during the previous quarter along with an error-correction term corresponding to the previous quarter's logarithmic difference between the level of the CLI and the level of GNP. Copyright 1996 by University of Chicago Press.

Suggested Citation

  • 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.
    • Handle: RePEc:ucp:jnlbus:v:69:y:1996:i:1:p:27-49
    DOI: 10.1086/209678
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