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

Leibniz Institute for Financial Research SAFE

Antonio Paradiso

Ca' Foscari University of Venice

Max Riedel

Leibniz Institute for Financial Research 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)

Leibniz Institute for Financial Research 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

Leibniz Institute for Financial Research SAFE ( email )

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

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