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Leading Indicators of German Business Cycles: An Assessment of Properties

Author

Listed:
  • Ulrich Fritsche

    (German Institute for Economic Research)

  • Sabine Stephan

    (German Institute for Economic Research)

Abstract

A reliable leading indicator should possess the following properties: (1) The movements in the indicator series should resemble those in the business cycle reference series. (2) The relation between the reference series and the indicator should be statistically significant and stable over time. (3) The inclusion of the indicator in out-of-sample forecasting procedures should improve the predictive power. Our analysis deals with tests for these requirements applied to German data. We used frequency domain analysis, different Granger-causality tests and out-of sample forecasts. Only few indicators passed all tests. Their inclusion into VAR-based forecasts improves the forecast in the very short run.

Suggested Citation

  • Ulrich Fritsche & Sabine Stephan, 2000. "Leading Indicators of German Business Cycles: An Assessment of Properties," Macroeconomics 0004005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0004005
    Note: Type of Document - Acrobat PDF; pages: 32; figures: included
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General

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