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The Composite Index of Leading Economic Indicators: How to Make it More Timely

  • Robert H. McGuckin

    (The Conference Board)

  • Ataman Ozyildirim

    ()

    (The Conference Board)

  • Victor Zarnowitz

    ()

    (The Conference Board)

A major shortcoming of the U.S. leading index is that it does not use the most recent information for stock prices and yield spreads. The index methodology ignores these data in favor of a time-consistent set of components (i.e., all of the components must refer to the previous month). An alternative is to bring the series with publication lags up-to-date with forecasts and create an index with a complete set of most recent components. This study uses tests of ex-ante predictive ability of the U.S. leading index to evaluate the gains to this new "hot box" procedure of statistical imputation. We find that, across a variety of simple forecasting models, the new approach offers substantial improvements.

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File URL: http://www.conference-board.org/economics/workingpapers.cfm?pdf=E-0004-00-WP
File Function: First version, 2000
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Paper provided by The Conference Board, Economics Program in its series Economics Program Working Papers with number 00-04.

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Length: 32 pages
Date of creation: Nov 2000
Date of revision:
Handle: RePEc:cnf:wpaper:0004
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  1. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  2. Swanson, N.R., 1996. "Forecasting Economic Time series Using Adaptive Versus Nonadaptive and Linecar Versus Nonlinear Econometric Models," Papers 4-96-2, Pennsylvania State - Department of Economics.
  3. James H. Stock & Mark W. Watson, 1998. "Business Cycle Fluctuations in U.S. Macroeconomic Time Series," NBER Working Papers 6528, National Bureau of Economic Research, Inc.
  4. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
  5. Zarnowitz, Victor, 1982. "On Functions, Quality, and Timeliness of Economic Information," The Journal of Business, University of Chicago Press, vol. 55(1), pages 87-119, January.
  6. Victor Zarnowitz, 1980. "On Functions, Quality, and Timeliness of Economic Information," NBER Working Papers 0608, National Bureau of Economic Research, Inc.
  7. Granger, Clive W. J. & King, Maxwell L. & White, Halbert, 1995. "Comments on testing economic theories and the use of model selection criteria," Journal of Econometrics, Elsevier, vol. 67(1), pages 173-187, May.
  8. Swanson, Norman R. & White, Halbert, 1997. "Forecasting economic time series using flexible versus fixed specification and linear versus nonlinear econometric models," International Journal of Forecasting, Elsevier, vol. 13(4), pages 439-461, December.
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