A New Monthly Indicator of Global Real Economic Activity

40 Pages Posted: 24 Apr 2015 Last revised: 27 Apr 2015

See all articles by Francesco Ravazzolo

Francesco Ravazzolo

Free University of Bolzano

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: April 1, 2015

Abstract

In modelling macroeconomic time series, often a monthly indicator of global real economic activity is used. We propose a new indicator, named World steel production, and compare it to other existing indicators, precisely the Kilian’s index of global real economic activity and the index of OECD World industrial production. We develop an econometric approach based on desirable econometric properties in relation to the quarterly measure of World or global gross domestic product to evaluate and to choose across different alternatives. The method is designed to evaluate short-term, long-term and predictability properties of the indicators. World steel production is proven to be the best monthly indicator of global economic activity in terms of our econometric properties. Kilian’s index of global real economic activity also accurately predicts World GDP growth rates. When extending the analysis to an out-of-sample exercise, both Kilian’s index of global real economic activity and the World steel production produce accurate forecasts for World GDP, confirming evidence provided by the econometric properties. Specifically, a forecast combination of the three indices produces statistically significant gains up to 40% at nowcast and more than 10% at longer horizons relative to an autoregressive benchmark.

Keywords: Global real economic activity, World steel production, Forecasting

JEL Classification: E1, E3, C1, C5, C8

Suggested Citation

Ravazzolo, Francesco and Vespignani, Joaquin, A New Monthly Indicator of Global Real Economic Activity (April 1, 2015). CAMA Working Paper No. 13/2015. Available at SSRN: https://ssrn.com/abstract=2597903 or http://dx.doi.org/10.2139/ssrn.2597903

Francesco Ravazzolo

Free University of Bolzano ( email )

Bolzano
Italy

Joaquin Vespignani (Contact Author)

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

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