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Taking the temperature : forecasting GDP growth for mainland in China

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  • Curran, Declan
  • Funke, Michael

Abstract

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

Suggested Citation

  • Curran, Declan & Funke, Michael, 2006. "Taking the temperature : forecasting GDP growth for mainland in China," BOFIT Discussion Papers 6/2006, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2006_006
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    References listed on IDEAS

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    Cited by:

    1. Christian Schulz, 2007. "Forecasting economic growth for Estonia : application of common factor methodologies," Bank of Estonia Working Papers 2007-09, Bank of Estonia, revised 04 Sep 2007.
    2. Bruno Deschamps & Paolo Bianchi, 2012. "An evaluation of Chinese macroeconomic forecasts," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(3), pages 229-246, December.
    3. Christian Schulz, 2008. "Forecasting economic activity for Estonia : The application of dynamic principal component analyses," Bank of Estonia Working Papers 2008-02, Bank of Estonia, revised 30 Oct 2008.

    More about this item

    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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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