Estimation and Forecasting of Industrial Production Index

Muhammad Ejaz and Javed Iqbal ()
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Javed Iqbal: State Bank of Pakistan

No 103, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: It is essential for policy makers to timely consider the cyclical changes in output. Monthly industrial production is one of the most important and commonly used macroeconomic indicators for this purpose. In Pakistan monthly estimates of industrial production are not available. Alternatively, policy makers rely on Large Scale Manufacturing (LSM) index which accounts for only 10% of the GDP. Another limitation of LSM is that it mainly accounts for private sector industry thus leaving out direct public sector presence in industrial production. LSM is relied upon heavily by economic policy makers to gauge economic activity in Pakistan. In this paper, we present a new Industrial Production Index (IPI), which covers whole of industrial sector in Pakistan. The advantage of this IPI index is that it provides additional information that LSM misses out. Post estimation, we built seven econometrics models reflecting conditions in real, financial and external sectors to estimate YoY changes in the proposed Instrial Production Index (IPI). Our results show that the root mean square error of the ARDL model reflecting financial conditions is lowest across all horizons

Keywords: Economic Indicator; Industry Studies; Econometric Forecasting (search for similar items in EconPapers)
JEL-codes: C53 C80 L60 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2019-04
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Journal Article: Estimation and Forecasting of Industrial Production Index (2021)
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