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Taking the Temperature - Forecasting GDP Growth for Mainland China

  • Declan Curran

    ()

  • Michael Funke

    ()

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 small scale factor model approach leads to successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions.

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Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 20606.

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Date of creation: Jun 2006
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Handle: RePEc:ham:qmwops:20606
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