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The Index of Leading Indicators: "Measurement without Theory," Twenty-Five Years Later

Listed author(s):
  • Alan J. Auerbach

The index of leading economic indicators first developed by the NBER remains a popular informal forecasting tool in spite of the original criticism that its use represents "measurement without theory. " This paper seeks to evaluate the performance of the index in comparison to alternative time series methods in predicting business cycle behavior. While the actual method of choosing the weights for the twelve series included in the index is essentially unnecessary (because the resulting series is indistinguishable from another with uniform weights) the series itself helps explain business cycle behavior, and outperforms an index with econometrically chosen weights.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0761.

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Date of creation: Sep 1981
Publication status: published as Auerbach, Alan J. "The Index of Leading Indicators: Measurement without Theory, Thirty-Five Years Later." The Review of Economics and Statistics, Vol. 64, No. 4 (November 1982), pp. 589-595.
Handle: RePEc:nbr:nberwo:0761
Note: EFG
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