FORECASTING US OUTPUT GROWTH USING LEADING INDICATORS: AN APPRAISAL USING MIDAS MODELS

We evaluate the predictive power of leading indicators for output growth at horizons up to I year. We use the MIDAS regression approach as this allows us to combine multiple individual leading indicators in a parsimonious way and to directly exploit the information content of the monthly series to predict quarterly output growth. When we use real-time vintage data, the indicators are found to have significant predictive ability, and this is further enhanced by the use of monthly data on the quarter at the time the forecast is made. Copyright (C) 2009 John Wiley & Sons, Ltd.