Leading Indicators for Euro-Area Inflation and GDP Growth

29 Pages Posted: 3 Feb 2006

See all articles by Anindya Banerjee

Anindya Banerjee

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

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)

Igor Masten

University of Ljubljana - Faculty of Economics

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Abstract

In this paper, we evaluate the role of a set of variables as leading indicators for Euro-area inflation and GDP growth. Our leading indicators are taken from the variables in the European Central Bank's (ECB) Euro-area-wide model database, plus a set of similar variables for the US. We compare the forecasting performance of each indicator ex post with that of purely autoregressive models. We also analyse three different approaches to combining the information from several indicators. First, ex post, we discuss the use as indicators of the estimated factors from a dynamic factor model for all the indicators. Secondly, within an ex ante framework, an automated model selection procedure is applied to models with a large set of indicators. No future information is used, future values of the regressors are forecast, and the choice of the indicators is based on their past forecasting records. Finally, we consider the forecasting performance of groups of indicators and factors and methods of pooling the ex ante single-indicator or factor-based forecasts. Some sensitivity analyses are also undertaken for different forecasting horizons and weighting schemes of forecasts to assess the robustness of the results.

JEL Classification: C53, E37, C50

Suggested Citation

Banerjee, Anindya and Marcellino, Massimiliano and Masten, Igor, Leading Indicators for Euro-Area Inflation and GDP Growth. Oxford Bulletin of Economics & Statistics, Vol. 67, No. S1, pp. 785-813, December 2005, Available at SSRN: https://ssrn.com/abstract=869093 or http://dx.doi.org/10.1111/j.1468-0084.2005.00141.x

Anindya Banerjee (Contact Author)

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Massimiliano Marcellino

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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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Igor Masten

University of Ljubljana - Faculty of Economics ( email )

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Ljubljana, 1000
Slovenia

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