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Real-Time Tests of the Leading Economic Index: Do Changes in the Index Composition Matter?

Author

Listed:
  • Robert H. McGuckin

    (The Conference Board)

  • Ataman Ozyildirim

    () (The Conference Board)

Abstract

This paper reports real-time out-of-sample tests of the ability of the U.S. Index Leading Economic Indicators (LEI) to forecast the economy using "composition-changing" "as-published" versions of the LEI. It is an extension of recent work that focused on forecasts with a "composition-constant" LEI. The results demonstrate that the LEI helps forecasts and compositional change in the LEI does not account for poor real-time out-of-sample forecast performance found in earlier work. Reviews of the historical record reinforce the findings.

Suggested Citation

  • Robert H. McGuckin & Ataman Ozyildirim, 2003. "Real-Time Tests of the Leading Economic Index: Do Changes in the Index Composition Matter?," Economics Program Working Papers 03-04, The Conference Board, Economics Program.
  • Handle: RePEc:cnf:wpaper:0304
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    File URL: http://www.conference-board.org/economics/workingpapers.cfm?pdf=E-0012-03-WP
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    References listed on IDEAS

    as
    1. Wesley Clair Mitchell & Arthur F. Burns, 1938. "Statistical Indicators of Cyclical Revivals," NBER Books, National Bureau of Economic Research, Inc, number mitc38-1, January.
    2. 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.
    3. McGuckin, Robert H. & Ozyildirim, Ataman & Zarnowitz, Victor, 2007. "A More Timely and Useful Index of Leading Indicators," Journal of Business & Economic Statistics, American Statistical Association, pages 110-120.
    4. Maximo Camacho & Gabriel Perez-Quiros, 2002. "This is what the leading indicators lead," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 61-80.
    5. Geoffrey H. Moore, 1950. "Statistical Indicators of Cyclical Revivals and Recessions," NBER Books, National Bureau of Economic Research, Inc, number moor50-1, January.
    6. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Forecasting output with the composite leading index: an ex ante analysis," Finance and Economics Discussion Series 90, Board of Governors of the Federal Reserve System (U.S.).
    7. Zarnowitz, Victor, 1992. "Business Cycles," National Bureau of Economic Research Books, University of Chicago Press, number 9780226978901.
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    Cited by:

    1. Rua, Antonio & Nunes, Luis C., 2005. "Coincident and leading indicators for the euro area: A frequency band approach," International Journal of Forecasting, Elsevier, vol. 21(3), pages 503-523.
    2. Loría, Eduardo & Brito, L., 2004. "Is the Consumer Confidence Index a Sound Predictor of the Private Demand in the United States?," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 22, pages 1-15, Diciembre.
    3. Levanon, Gad & Manini, Jean-Claude & Ozyildirim, Ataman & Schaitkin, Brian & Tanchua, Jennelyn, 2015. "Using financial indicators to predict turning points in the business cycle: The case of the leading economic index for the United States," International Journal of Forecasting, Elsevier, vol. 31(2), pages 426-445.

    More about this item

    Keywords

    Business cycle; Indicators; Leading index; Times series; Forecasting;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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