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Monitoring the Economy of the Euro Area: A Comparison of Composite Coincident Indexes

Listed author(s):
  • Andrea Carriero
  • Massimiliano Marcellino

Monitoring the current status of the economy is quite relevant for policy making but also for the decisions of private agents, consumers and firms. Since it is difficult to identify a single variable that provides a good measure of current economic conditions, it can be preferable to consider a combination of several coincident indicators, i.e., a composite coincident index (CCI). In this paper, we review the main statistical techniques for the construction of CCIs, propose a new pooling-based method, and apply the alternative techniques for constructing CCIs for the largest European countries in the euro area and for the euro area as a whole. We find that different statistical techniques yield comparable CCIs, so that it is possible to reach a consensus on the status of the economy.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 319.

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Date of creation: 2007
Handle: RePEc:igi:igierp:319
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  1. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2003. "The Generalized Dynamic Factor Model. One-Sided Estimation and Forecasting," LEM Papers Series 2003/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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  15. Kim, C-J., 1991. "Dynamic Linear Models with Markov-Switching," Papers 91-8, York (Canada) - Department of Economics.
  16. David Hendry & Michael P. Clements, 2001. "Pooling of Forecasts," Economics Papers 2002-W9, Economics Group, Nuffield College, University of Oxford.
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  20. Carriero, Andrea & Marcellino, Massimiliano, 2007. "A comparison of methods for the construction of composite coincident and leading indexes for the UK," International Journal of Forecasting, Elsevier, vol. 23(2), pages 219-236.
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