Are There Any Reliable Leading Indicators for U.S. Inflation and GDP Growth?

IGIER Working Paper No. 236

46 Pages Posted: 13 Jun 2003

See all articles by Massimiliano Giuseppe Marcellino

Massimiliano Giuseppe Marcellino

European University Institute; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Anindya Banerjee

European University Institute - Department of Economics; University of Oxford - Department of Economics

Igor Masten

University of Ljubljana - Faculty of Economics

Date Written: April 2003

Abstract

In this paper we evaluate the relative merits of three approaches to information extraction from a large data set for forecasting, namely, the use of an automated model selection procedure, the adoption of a factor model, and single-indicator-based forecast pooling. The comparison is conducted using a large set of indicators for forecasting US inflation and GDP growth. We also compare our large set of leading indicators with purely autoregressive models, using an evaluation procedure that is particularly relevant for policy making. The evaluation is conducted both ex-post and in a pseudo real time context, for several forecast horizons, and using both recursive and rolling estimation. The results indicate a preference for simple forecasting tools, with a good relative performance of pure autoregressive models, and substantial instability in the leading characteristics of the indicators.

Keywords: Leading indicator, factor model, model selection, GDP growth, inflation

JEL Classification: C53, E37, C50

Suggested Citation

Marcellino, Massimiliano and Banerjee, Anindya and Masten, Igor, Are There Any Reliable Leading Indicators for U.S. Inflation and GDP Growth? (April 2003). IGIER Working Paper No. 236. Available at SSRN: https://ssrn.com/abstract=396361 or http://dx.doi.org/10.2139/ssrn.396361

Massimiliano Marcellino (Contact Author)

European University Institute ( email )

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Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Florence, Florence 50014
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Bocconi University - Department of Economics ( email )

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Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Anindya Banerjee

European University Institute - Department of Economics ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy
+39 055 4685 356 (Phone)
+39 055 4685 202 (Fax)

University of Oxford - Department of Economics ( email )

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Oxford, OX1 3BJ
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+44 1865 279 700 (Phone)
+44 1865 279 687 (Fax)

Igor Masten

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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