IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Should We Trust in Leading Indicators? Evidence from the Recent Recession

  • Katja Drechsel
  • Rolf Scheufele

The paper analyzes leading indicators for GDP and industrial production in Germany. We focus on the performance of single and pooled leading indicators during the pre-crisis and crisis period using various weighting schemes. Pairwise and joint significant tests are used to evaluate single indicator as well as forecast combination methods. In addition, we use an end-of-sample instability test to investigate the stability of forecasting models during the recent financial crisis. We find in general that only a small number of single indicator models were performing well before the crisis. Pooling can substantially increase the reliability of leading indicator forecasts. During the crisis the relative performance of many leading indicator models increased. At short horizons, survey indicators perform best, while at longer horizons financial indicators, such as term spreads and risk spreads, improve relative to the benchmark.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.iwh-halle.de/d/publik/disc/10-10.pdf
Download Restriction: no

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 10.

as
in new window

Length:
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:iwh:dispap:10-10
Contact details of provider: Postal: Kleine Märkerstrasse 8, 06108 Halle (Saale)
Phone: (0345) 7753-60
Fax: (0345) 7753-820
Web page: http://www.iwh-halle.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  2. Armstrong, J. Scott & Collopy, Fred, 1992. "Error measures for generalizing about forecasting methods: Empirical comparisons," International Journal of Forecasting, Elsevier, vol. 8(1), pages 69-80, June.
  3. Konstantin A. Kholodilin & Boriss Siliverstovs, 2006. "On the Forecasting Properties of the Alternative Leading Indicators for the German GDP: Recent Evidence," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 226(3), pages 234-259, May.
  4. Gebhardt Kirschgässner & Marcel Savioz, 2001. "Monetary Policy and Forecasts for Real GDP Growth: An Empirical Investigation for the Federal Republic of Germany," German Economic Review, Verein für Socialpolitik, vol. 2(4), pages 339-365, November.
  5. Raffaella Giacomini & Halbert White, 2006. "Tests of Conditional Predictive Ability," Econometrica, Econometric Society, vol. 74(6), pages 1545-1578, November.
  6. Ulrich Fritsche & Sabine Stephan, 2002. "Leading Indicators of German Business Cycles - An Assessment of Properties," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 222(3), pages 289-315.
  7. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  8. Dreger, Christian & Schumacher, Christian, 2002. "Estimating large-scale factor models for economic activity in Germany : do they outperform simpler models?," HWWA Discussion Papers 199, Hamburg Institute of International Economics (HWWA).
  9. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.
  10. David C. Wheelock & Mark E. Wohar, 2009. "Can the term spread predict output growth and recessions? a survey of the literature," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 419-440.
  11. Todd E. Clark & Michael W. McCracken, 1999. "Tests of equal forecast accuracy and encompassing for nested models," Research Working Paper 99-11, Federal Reserve Bank of Kansas City.
  12. Giacomini, Raffaella & Rossi, Barbara, 2008. "Forecast Comparisons in Unstable Environments," Working Papers 08-04, Duke University, Department of Economics.
  13. Timmermann, Allan, 2006. "Forecast Combinations," Handbook of Economic Forecasting, Elsevier.
  14. Christian Dreger & Christian Schumacher, 2005. "Out-of-sample Performance of Leading Indicators for the German Business Cycle: Single vs. Combined Forecasts," Journal of Business Cycle Measurement and Analysis, OECD Publishing,Centre for International Research on Economic Tendency Surveys, vol. 2005(1), pages 71-87.
  15. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  16. Hansen, Peter Reinhard, 2005. "A Test for Superior Predictive Ability," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 365-380, October.
  17. Francis X. Diebold & Peter Pauly, 1987. "The use of prior information in forecast combination," Special Studies Papers 218, Board of Governors of the Federal Reserve System (U.S.).
  18. Jonathan H. Wright, 2003. "Bayesian Model Averaging and exchange rate forecasts," International Finance Discussion Papers 779, Board of Governors of the Federal Reserve System (U.S.).
  19. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2002. "Do Financial Variables Help Forecasting Inflation and Real Activity in the Euro Area?," CEPR Discussion Papers 3146, C.E.P.R. Discussion Papers.
  20. Nikolay Robinzonov & Klaus Wohlrabe, 2010. "Freedom of Choice in Macroeconomic Forecasting ," CESifo Economic Studies, CESifo, vol. 56(2), pages 192-220, June.
  21. Donald W.K. Andrews, 2002. "End-of-Sample Instability Tests," Cowles Foundation Discussion Papers 1369, Cowles Foundation for Research in Economics, Yale University.
  22. Campbell, Sean D., 2007. "Macroeconomic Volatility, Predictability, and Uncertainty in the Great Moderation: Evidence From the Survey of Professional Forecasters," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 191-200, April.
  23. George Kapetanios & Vincent Labhard & Simon Price, 2005. "Forecasting using Bayesian and information theoretic model averaging: an application to UK inflation," Bank of England working papers 268, Bank of England.
  24. Kuzin, Vladimir & Marcellino, Massimiliano & Schumacher, Christian, 2009. "Pooling versus model selection for nowcasting with many predictors: An application to German GDP," CEPR Discussion Papers 7197, C.E.P.R. Discussion Papers.
  25. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, 02.
  26. Seitz, Franz & Brand, Claus & Reimers, Hans-Eggert, 2003. "Forecasting real GDP: what role for narrow money?," Working Paper Series 0254, European Central Bank.
  27. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  28. Schumacher, Christian & Breitung, Jörg, 2008. "Real-time forecasting of German GDP based on a large factor model with monthly and quarterly data," International Journal of Forecasting, Elsevier, vol. 24(3), pages 386-398.
  29. Mark W. Watson & James H. Stock, 2004. "Combination forecasts of output growth in a seven-country data set," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(6), pages 405-430.
  30. Swanson, Norman R., 1998. "Money and output viewed through a rolling window," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 455-474, May.
  31. Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
  32. Katja Drechsel & Laurent Maurin, 2011. "Flow of conjunctural information and forecast of euro area economic activity," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(3), pages 336-354, April.
  33. Jonathan H. Wright, 2003. "Forecasting U.S. inflation by Bayesian Model Averaging," International Finance Discussion Papers 780, Board of Governors of the Federal Reserve System (U.S.).
  34. West, Kenneth D., 2006. "Forecast Evaluation," Handbook of Economic Forecasting, Elsevier.
  35. Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, vol. 68(5), pages 1097-1126, September.
  36. Hibon, Michele & Evgeniou, Theodoros, 2005. "To combine or not to combine: selecting among forecasts and their combinations," International Journal of Forecasting, Elsevier, vol. 21(1), pages 15-24.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iwh:dispap:10-10. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hubert Gabrisch)

The email address of this maintainer does not seem to be valid anymore. Please ask Hubert Gabrisch to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.