A Quasi Real-Time Leading Indicator for the EU Industrial Production

26 Pages Posted: 24 Nov 2015 Last revised: 19 Nov 2016

See all articles by Michael Donadelli

Michael Donadelli

Goethe University Frankfurt - Research Center SAFE

Antonio Paradiso

Ca' Foscari University of Venice

Max Riedel

Goethe University Frankfurt - Research Center SAFE

Date Written: January 4, 2016

Abstract

We build a quasi real-time leading indicator (LI) for the EU industrial production (IP). Differently from previous studies, the technique developed in this paper gives rise to an ex-ante LI that is immune to “overlapping information drawbacks”. In addition, the set of variables composing the LI relies on a two-steps dynamic and systematic procedure. This ensures that the choice of the variables is not driven by subjective views. Our LI anticipates swings (including the 2007-2008 crisis) in the EU industrial production – on average – by 2 to 3 months. If revised, its predictive power largely improves. Via a couple of standard empirical exercises we show that the proposed LI (i) forecasts crises’ phases better than the ex-post LIs proposed by the OECD and the Conference Board and (ii) captures the interest rate policy pattern rather well.

Keywords: Leading indicator, EU industrial production, Granger causality, Turning points, Forward-looking Taylor rule

JEL Classification: E32, C22, C52

Suggested Citation

Donadelli, Michael and Paradiso, Antonio and Riedel, Max, A Quasi Real-Time Leading Indicator for the EU Industrial Production (January 4, 2016). SAFE Working Paper No. 118. Available at SSRN: https://ssrn.com/abstract=2694608 or http://dx.doi.org/10.2139/ssrn.2694608

Michael Donadelli (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Antonio Paradiso

Ca' Foscari University of Venice ( email )

Cannaregio 873
Venice, Venice 30121
Italy

Max Riedel

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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