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Taking the temperature : forecasting GDP growth for mainland in China

Listed author(s):
  • Curran, Declan
  • Funke, Michael

We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model.Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index.These series are found to share a common, unobservable element from which our indicator can be identified.This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth.Recursive out-of-sample accuracy tests indicate that the smallscale factor model approach leads to a successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions. Keywords: Forecasting, China, Leading Indicator, Factor Model, Growth Cycles JEL-Classification: C32, C52, E32, E37

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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 6/2006.

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Date of creation: 30 May 2006
Handle: RePEc:bof:bofitp:2006_006
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Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland

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