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Leading Indicators: What Have We Learned?

Author

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  • Massimiliano Marcellino
Abstract
We provide a summary updated guide for the construction, use and evaluation of leading indicators, and an assessment of the most relevant recent developments in this field of economic forecasting. To begin with, we analyze the problem of selecting a target coincident variable for the leading indicators, which requires coincident indicator selection, construction of composite coincident indexes, choice of filtering methods, and business cycle dating procedures to transform the continous target into a binary expansion/recession indicator. Next, we deal with criteria for choosing good leading indicators, and simple non-model based methods to combine them into composite indexes. Then, we examine models and methods to transform the leading indicators into forecasts of the target variable. Finally, we consider the evaluation of the resulting leading indicator based forecasts, and review the recent literature on the forecasting performance of leading indicators.

Suggested Citation

  • Massimiliano Marcellino, 2005. "Leading Indicators: What Have We Learned?," Working Papers 286, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:286
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    Cited by:

    1. Ard den Reijer, 2006. "The Dutch business cycle: which indicators should we monitor?," DNB Working Papers 100, Netherlands Central Bank, Research Department.
    2. Allen, P. Geoffrey & Morzuch, Bernard J., 2006. "Twenty-five years of progress, problems, and conflicting evidence in econometric forecasting. What about the next 25 years?," International Journal of Forecasting, Elsevier, vol. 22(3), pages 475-492.
    3. 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.
    4. Declan Curran & Michael Funke, 2006. "Taking the Temperature - Forecasting GDP Growth for Mainland China," Quantitative Macroeconomics Working Papers 20606, Hamburg University, Department of Economics.
    5. Croce, Roberto M. & Haurin, Donald R., 2009. "Predicting turning points in the housing market," Journal of Housing Economics, Elsevier, vol. 18(4), pages 281-293, December.
    6. Olivier Bandt & Catherine Bruneau & Alexis Flageollet, 2006. "Assessing Aggregate Comovements in France, Germany and Italy Using a Non Stationary Factor Model of the Euro Area," Springer Books, in: Convergence or Divergence in Europe?, pages 95-120, Springer.
    7. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(2), pages 185-202.
    8. 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.
    9. Vladimir Dubrovskiy & Inna Golodniuk & Janusz Szyrmer, 2009. "Composite Leading Indicators for Ukraine: An Early Warning Model," CASE Network Reports 0085, CASE-Center for Social and Economic Research.
    10. Idrovo Aguirre, Byron, 2007. "Los Ciclos del Mercado Inmobiliario y su Relación con los Ciclos de la Economía [Housing Market Fluctuations and the Economic Cycles]," MPRA Paper 19365, University Library of Munich, Germany, revised 24 Sep 2007.
    11. Muriel Nguiffo-Boyom, 2008. "A monthly indicator of Economic activity for Luxembourg," BCL working papers 31, Central Bank of Luxembourg.
    12. Declan Curran & Michael Funke, 2006. "Taking the Temperature - Forecasting GDP Growth for Mainland China," Quantitative Macroeconomics Working Papers 20606, Hamburg University, Department of Economics.
    13. John G Powell & Sirimon Treepongkaruna, 2012. "Recession fears as self-fulfilling prophecies? Influence on stock returns and output," Australian Journal of Management, Australian School of Business, vol. 37(2), pages 231-260, August.
    14. Aiolfi, Marco & Catão, Luis A.V. & Timmermann, Allan, 2011. "Common factors in Latin America's business cycles," Journal of Development Economics, Elsevier, vol. 95(2), pages 212-228, July.
    15. Maria Antoinette Silgoner, 2005. "An Overview of European Economic Indicators: Great Variety of Data on the Euro Area, Need for More Extensive Coverage of the New EU Member States," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 66-89.
    16. Matta Samer, 2015. "New Coincident and Leading Indexes for the Lebanese Economy," Review of Middle East Economics and Finance, De Gruyter, vol. 11(3), pages 277-303, December.
    17. repec:zbw:bofitp:2006_006 is not listed on IDEAS
    18. Sylvia Kaufmann, 2010. "Dating and forecasting turning points by Bayesian clustering with dynamic structure: a suggestion with an application to Austrian data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(2), pages 309-344.

    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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