Journal
JOURNAL OF BUSINESS & ECONOMIC STATISTICS
Volume 25, Issue 1, Pages 110-120Publisher
AMER STATISTICAL ASSOC
DOI: 10.1198/073500106000000279
Keywords
business cycle; forecasting; indicators; leading index; times series
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Effectively predicting cyclical movements in the economy is a major challenge. The U.S. leading index (LI) has long been used to analyze and predict economic fluctuations. We describe and test a new procedure for making the LI more timely. The new LI significantly outperforms its older counterpart. It offers substantial gains in real-time, out-of-sample forecasts of changes in aggregate economic activity (real GDP, the index of coincident indicators, and industrial production) and provides timely and accurate ex ante information for predicting not only business cycle turning points, but also monthly changes in the economy.
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