Taking the Temperature - Forecasting GDP Growth for Mainland China

44 Pages Posted: 24 Jul 2007

See all articles by Declan Curran

Declan Curran

University of Hamburg - Faculty of Economics and Business Administration

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Date Written: June 2, 2006

Abstract

We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model. Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index. These series are found to share a common, unobservable element from which our indicator can be identified. This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth. Recursive out-of-sample accuracy tests indicate that the small-scale factor model approach leads to a successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions.

Keywords: forecasting, china, leading indicator, factor model, growth cycles

JEL Classification: C32, C52, E32, E37

Suggested Citation

Curran, Declan and Funke, Michael, Taking the Temperature - Forecasting GDP Growth for Mainland China (June 2, 2006). BOFIT Discussion Paper No. 6/2006, Available at SSRN: https://ssrn.com/abstract=1002597 or http://dx.doi.org/10.2139/ssrn.1002597

Declan Curran (Contact Author)

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Michael Funke

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

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