Forecasting Chinese GDP Growth with Mixed Frequency Data: Which Indicators to Look at?
KOF Working Paper No. 359
45 Pages Posted: 11 Jul 2014
Date Written: July 10, 2014
Building on a mixed data sampling (MIDAS) model we evaluate the predictive power of a variety of monthly macroeconomic indicators for forecasting quarterly Chinese GDP growth. We iterate the evaluation over forecast horizons from 370 days to 1 day prior to GDP release and track the release days of the indicators so as to only use information which is actually available at the respective day of forecast. This procedure allows us to detect how useful a specific indicator is at a specific forecast horizon relative to other indicators. Despite being published with an (additional) lag of one month the OECD leading indicator outperforms the leading indicators published by the Conference Board and by Goldman Sachs. Albeit being smaller in terms of market volume, the Shenzhen Composite Stock Exchange Index outperforms the Shanghai Composite Stock Exchange Index and several Hong Kong Stock Exchange indices. Consumer price inflation is especially valuable at forecast horizons of 11 to 7 months. The reserve requirement ratio for small banks proves to be a robust predictor at forecast horizons of 9 to 5 months, whereas the big banks reserve requirement ratio and the prime lending rate have lost their leading properties since 2009. Industrial production can be quite valuable for now - or even forecasting, but only if it is released shortly after the end of a month. Neither monthly retail sales, investment, trade, electricity usage, freight traffic nor the manufacturing purchasing managers' index of the Chinese National Bureau of Statistics help much for now - or forecasting. Our results might be relevant for experts who need to know which indicator releases are really valuable for predicting quarterly Chinese GDP growth, and which indicator releases have less predictive content.
Keywords: forecasting, mixed frequency data, MIDAS, China, GDP growth
JEL Classification: C53, E27
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