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Measuring Global Real Economic Activity: Do Recent Critiques Hold Up to Scrutiny?

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Abstract

Hamilton (2018) suggests that the Kilian (2009) index of global real economic activity is misleading and calls for alternative measures. The problem documented by Hamilton is a consequence of a coding mistake. Specifically, the index of nominal freight rates underlying the Kilian index was accidentally logged twice. Once this coding error is corrected by removing one of the log transformations, none of the concerns raised by Hamilton remains valid and the index may be used as originally intended. Moreover, it can be shown that the corrected index differs only slightly from the original index and that the key empirical results in Kilian (2009) and related studies remain unchanged when replacing the index.

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  • ,, 2019. "Measuring Global Real Economic Activity: Do Recent Critiques Hold Up to Scrutiny?," CEPR Discussion Papers 13455, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13455
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    1. Lutz Kilian, 2017. "The Impact of the Fracking Boom on Arab Oil Producers," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    2. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2013. "Forecasting the Price of Oil," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 427-507, Elsevier.
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    4. Valentina G. Bruno & Bahattin Büyükşahin & Michel A. Robe, 2017. "The Financialization of Food?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(1), pages 243-264.
    5. Kilian, Lutz & Zhou, Xiaoqing, 2018. "Modeling fluctuations in the global demand for commodities," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 54-78.
    6. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    7. Xiaoqing Zhou, 2020. "Refining the workhorse oil market model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(1), pages 130-140, January.
    8. Lutz Kilian & Bruce Hicks, 2013. "Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(5), pages 385-394, August.
    9. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
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    More about this item

    Keywords

    Global business cycle; Shipping; Commodity market; Oil; Log transformation;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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