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Taking the temperature – forecasting GDP growth for mainland China

  • Curran, Declan

    (BOFIT)

  • Funke, Michael

    ()

    (Hamburg University, Germany)

We present a new composite leading indicator of economic activity in mainland China, es-timated using a dynamic factor model. Our leading indicator is constructed from three se-ries: 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 a successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp0606.pdf
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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 6/2006.

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Length: 44 pages
Date of creation: 02 Jun 2006
Date of revision:
Handle: RePEc:hhs:bofitp:2006_006
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
Web page: http://www.suomenpankki.fi/bofit_en/
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