Leading Indicators in a Globalised World

26 Pages Posted: 13 Dec 2009  

Ferdinand Fichtner

European Central Bank (ECB) - Directorate General Economics

Rasmus Rueffer

European Central Bank (ECB)

Bernd Schnatz

European Central Bank (ECB)

Date Written: December 9, 2009

Abstract

Using OECD composite leading indicators (CLI), we assess empirically whether the ability of the country-specific CLIs to predict economic activity has diminished in recent years, e.g. due to rapid advances in globalisation. Overall, we find evidence that the CLI encompasses useful information for forecasting industrial production, particularly over horizons of four to eight months ahead. The evidence is particularly strong when taking cointegration relationships into account. At the same time, we find indications that the forecast accuracy has declined over time for several countries. Augmenting the country-specific CLI with a leading indicator of the external environment and employing forecast combination techniques improves the forecast performance for several economies. Over time, the increasing importance of international dependencies is documented by relative performance gains of the extended model for selected countries.

Keywords: Leading Indicator, Business Cycle, Forecast Comparison, Globalisation, Structural Change

JEL Classification: C53, E32, E37, F47

Suggested Citation

Fichtner, Ferdinand and Rueffer, Rasmus and Schnatz, Bernd, Leading Indicators in a Globalised World (December 9, 2009). ECB Working Paper No. 1125. Available at SSRN: https://ssrn.com/abstract=1516168

Ferdinand Fichtner (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Rasmus Rueffer

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7087 (Phone)
+49 69 1344 6353 (Fax)

Bernd Schnatz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
069-1344-6517 (Phone)

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