A Real Activity Index for Mainland China
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.
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