An Automatic Leading Indicator of Economic Activity: Forecasting GDP Growth for European Countries

Posted: 27 Sep 2001

See all articles by Gonzalo Camba-Mendez

Gonzalo Camba-Mendez

European Central Bank (ECB)

George Kapetanios

King's College, London

Richard J. Smith

University of Warwick - Department of Economics; National Institute of Economic and Social Research (NIESR)

Martin R. Weale

National Institute of Economic and Social Research (NIESR)

Abstract

In the construction of a leading indicator model of economic activity, economists must select among a pool of variables which lead output growth. Usually the pool of variables is large and a selection of a subset must be carried out. This paper proposes an automatic leading indicator model which, rather than preselection, uses a dynamic factor model to summarize the information content of a pool of variables. Results using quarterly data for France, Germany, Italy and the United Kingdom show that the overall forecasting performance of the automatic leading indicator model appears better than that of more traditional VAR and BVAR models.

Keywords: Dynamic factor model, Forecasting, Kalman filter, AR, VAR and BVAR models

Suggested Citation

Camba-Mendez, Gonzalo and Kapetanios, George and Smith, Richard J. and Weale, Martin R., An Automatic Leading Indicator of Economic Activity: Forecasting GDP Growth for European Countries. Available at SSRN: https://ssrn.com/abstract=281974

Gonzalo Camba-Mendez

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Richard J. Smith

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 0 24 7652 3468 (Phone)
+44 0 24 7652 3032 (Fax)

National Institute of Economic and Social Research (NIESR)

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

Martin R. Weale (Contact Author)

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

HOME PAGE: http://www.niesr.ac.uk/

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