What Do the Leading Indicators Lead?

Journal of Business, Vol. 59, No 1, January 1996

Posted: 16 Jul 1998

See all articles by James D. Hamilton

James D. Hamilton

University of California at San Diego; National Bureau of Economic Research (NBER)

Gabriel Perez-Quiros

Banco de España

Abstract

We find that the composite leading index (CLI) is useful forforecasting GNP, both in sample and in an out-of-sample real-time exercise. We propose a nonlinear specification in which cyclical shifts of the CLI precede those in GNP. However, we find that better forecasts are provided by a simple linear relation between current GNP growth and the growth rate of the CLI during the previous quarter along with an error-correction term corresponding to the previous quarter's logarithmic difference between the level of the CLI and the level of GNP.

JEL Classification: G21

Suggested Citation

Hamilton, James D. and Perez-Quiros, Gabriel, What Do the Leading Indicators Lead?. Journal of Business, Vol. 59, No 1, January 1996, Available at SSRN: https://ssrn.com/abstract=6897

James D. Hamilton (Contact Author)

University of California at San Diego ( email )

9500 Gilman Drive
Mail code: 0508
La Jolla, CA 92093-0508
United States
619-534-5986 (Phone)
619-534-7040 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014
Spain

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