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

33 Pages Posted: 29 May 2020

See all articles by Michael Donadelli

Michael Donadelli

University of Brescia

Antonio Paradiso

Ca' Foscari University of Venice

Max Riedel

Leibniz Institute for Financial Research SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: July 2019

Abstract

We build a quasi‐real‐time leading indicator (LI) for the EU industrial production (EU IP). Differently from previous studies, the technique developed in this paper gives rise to an ex‐ante LI that is immune to ex‐post revisions in constituent variables and, thus, does not suffer from overlapping information drawbacks. Moreover, the set of variables used to construct the LI relies on a two‐step dynamic and systematic statistical procedure. This approach ensures that the choice of the variables is not driven by subjective views. Our LI anticipates—on average—main recession periods in the EU industrial production by two to three months. If revised, its predictive power improves. Additional empirical analyses show that the proposed LI (i) forecasts the Great Recession period better than the ex‐post LIs proposed by the OECD and the Conference Board, and (ii) captures the interest rate policy pattern rather well.

Suggested Citation

Donadelli, Michael and Paradiso, Antonio and Riedel, Max, A Quasi Real‐Time Leading Indicator for the EU Industrial Production (July 2019). The Manchester School, Vol. 87, Issue 4, pp. 510-542, 2019, Available at SSRN: https://ssrn.com/abstract=3613914 or http://dx.doi.org/10.1111/manc.12233

Michael Donadelli (Contact Author)

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

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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