Should We Trust in Leading Indicators? Evidence from the Recent Recession

Katja Drechsel and Rolf Scheufele
Authors registered in the RePEc Author Service: Katja Heinisch

No 10/2010, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: The paper analyzes leading indicators for GDP and industrial production in Germany. We focus on the performance of single and pooled leading indicators during the pre-crisis and crisis period using various weighting schemes. Pairwise and joint significant tests are used to evaluate single indicator as well as forecast combination methods. In addition, we use an end-of-sample instability test to investigate the tability of forecasting models during the recent financial crisis. We find in general that only a small number of single indicator models were performing well before the crisis. Pooling can substantially increase the reliability of leading indicator forecasts. During the crisis the relative performance of many leading indicator models increased. At short horizons, survey indicators perform best, while at longer horizons financial indicators, such as term spreads and risk spreads, improve relative to the benchmark.

Keywords: Leading Indicators; Forecast Evaluation; Forecast Pooling; Structural Breaks; Frühindikatoren; Prognosegüte; Prognosekombination; Strukturbrüche (search for similar items in EconPapers)
JEL-codes: C22 C53 E37 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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