Measuring Global Real Economic Activity: Do Recent Critiques Hold Up to Scrutiny?

14 Pages Posted: 23 Jan 2019

See all articles by Lutz Kilian

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: January 2019

Abstract

Hamilton (2018) suggests that the Kilian (2009) index of global real economic activity is misleading and calls for alternative measures. The problem documented by Hamilton is a consequence of a coding mistake. Specifically, the index of nominal freight rates underlying the Kilian index was accidentally logged twice. Once this coding error is corrected by removing one of the log transformations, none of the concerns raised by Hamilton remains valid and the index may be used as originally intended. Moreover, it can be shown that the corrected index differs only slightly from the original index and that the key empirical results in Kilian (2009) and related studies remain unchanged when replacing the index.

Keywords: Commodity market, Global business cycle, log transformation, Oil, shipping

JEL Classification: Q31, Q43

Suggested Citation

Kilian, Lutz, Measuring Global Real Economic Activity: Do Recent Critiques Hold Up to Scrutiny? (January 2019). CEPR Discussion Paper No. DP13455. Available at SSRN: https://ssrn.com/abstract=3319772

Lutz Kilian (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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