The Index of Leading Indicators: "Measurement Without Theory," Twenty-Five Years Later

23 Pages Posted: 2 Aug 2010 Last revised: 27 Dec 2011

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: September 1981

Abstract

The index of leading economic indicators first developed by the NBER remains a popular informal forecasting tool in spite of the original criticism that its use represents "measurement without theory. " This paper seeks to evaluate the performance of the index in comparison to alternative time series methods in predicting business cycle behavior. While the actual method of choosing the weights for the twelve series included in the index is essentially unnecessary (because the resulting series is indistinguishable from another with uniform weights) the series itself helps explain business cycle behavior, and outperforms an index with econometrically chosen weights.

Suggested Citation

Auerbach, Alan Jeffrey, The Index of Leading Indicators: "Measurement Without Theory," Twenty-Five Years Later (September 1981). NBER Working Paper No. w0761. Available at SSRN: https://ssrn.com/abstract=1652051

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
267
PlumX Metrics