Leading Indicators for Euro Area Inflation and GDP Growth

44 Pages Posted: 24 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

Multiple version iconThere are 3 versions of this paper

Date Written: May 2003

Abstract

In this Paper we evaluate the role of a set of variables as leading indicators for Euro-area inflation and GDP growth. Our evaluation is based on using the variables in the ECB euro area model database, plus a set of similar variables for the US. We compare the forecasting performance of each indicator with that of 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. We also analyse three different approaches to combining the information from several indicators. First, we discuss the use as indicators of the estimated factors from a dynamic factor model for all the indicators. Second, an automated model selection procedure is applied to models with a large set of indicators. Third, we consider pooling the single indicator forecasts. The results indicate that single indicator forecasts are on average better than those derived from more complicated methods, but for them to beat the autoregression a different indicator has to be used in each period. A simple real-time procedure for indicator-selection produces good results.

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

JEL Classification: C53, E37

Suggested Citation

Marcellino, Massimiliano and Banerjee, Anindya and Masten, Igor, Leading Indicators for Euro Area Inflation and GDP Growth (May 2003). Available at SSRN: https://ssrn.com/abstract=419480

Massimiliano Marcellino (Contact Author)

European University Institute ( email )

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

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Bocconi University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Anindya Banerjee

European University Institute - Department of Economics ( email )

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Igor Masten

University of Ljubljana - Faculty of Economics ( email )

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Ljubljana, 1000
Slovenia

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