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A Real Activity Index for Mainland China

Author

Listed:
  • Li-gang Liu

    (Research Department, Hong Kong Monetary Authority)

  • Wenlang Zhang

    (Research Department, Hong Kong Monetary Authority)

  • Jimmy Shek

    (Research Department, Hong Kong Monetary Authority)

Abstract

This paper develops a composite real activity index (RAI) using eight monthly activity indicators for the Mainland economy based on the methodology of the Conference Board. The RAI appears to be able to track the Mainland GDP growth quite well. The results from a logit regression indicate that the RAI can correctly predict the next movement of the quarterly GDP growth rate with a probability of up to 68 percent. In addition, the RAI can beat a random walk process when used to conduct forecasts. Compared with indexes constructed using alternative methods, the RAI has economic properties that are easier to interpret. While the predictability of the RAI can be enhanced further with better data, it is a useful leading indicator to help monitor the momentum of the aggregate activities of the Mainland economy before the official release of the quarterly GDP data.

Suggested Citation

  • Li-gang Liu & Wenlang Zhang & Jimmy Shek, 2007. "A Real Activity Index for Mainland China," Working Papers 0707, Hong Kong Monetary Authority.
  • Handle: RePEc:hkg:wpaper:0707
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    File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP07_07_full.pdf
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    Cited by:

    1. Peng Bin, 2016. "Dynamic Development of Regional Disparity in Mainland China: An Experimental Study Based on a Multidimensional Index," Sustainability, MDPI, Open Access Journal, vol. 8(12), pages 1-28, December.

    More about this item

    Keywords

    Real Activity Index; China; Dynamic Factor Model;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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