Working Paper Abstract
286.Leading Indicators: What Have We Learned?Massimilano Marcellino (UniversitÓ Bocconi and IGIER)
We provide a summary updated guide for the construction, use and evaluation ofleading indicators, and an assessment of the most relevant recent developments in thisfield of economic forecasting. To begin with, we analyze the problem of selecting atarget coincident variable for the leading indicators, which requires coincident indicatorselection, construction of composite coincident indexes, choice of filtering methods,and business cycle dating procedures to transform the continous target into a binaryexpansion/recession indicator. Next, we deal with criteria for choosing good leadingindicators, and simple non-model based methods to combine them into composite indexes.Then, we examine models and methods to transform the leading indicators intoforecasts of the target variable. Finally, we consider the evaluation of the resultingleading indicator based forecasts, and review the recent literature on the forecastingperformance of leading indicators.
Keywords: Business Cycles, Leading Indicators, Coincident Indicators, Turning Points,Forecasting
J.E.L. Classification: E32, E37, C53
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