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Leading Indicators of Growth and Inflation in Turkey

Daniel Leigh and Marco Rossi

No 02/231, IMF Working Papers from International Monetary Fund

Abstract: Growth and inflation in Turkey have been volatile over the last two decades. It would, therefore, be useful to identify indicators that anticipate economic conditions and inflation. This paper investigates the predictive performance of economic indicators for inflation and real output growth in Turkey. We find that (i) the forecasting ability of individual indicators is unstable; but that (ii) a suitable combination of these unstable forecasts yields a forecast that reliably outperforms that generated by an autoregressive model. We then propose a two-stage combination forecast obtained by taking the median of the top five performing individual forecasts. This two-stage forecast reliably improves on autoregressive benchmarks and outperforms the combination forecast based on all the individual forecasts.

Keywords: Central banks and their policies; Inflation targeting; Leading indicators; Turkey; Growth, inflation, combination forecasts, monetary policy, central bank, monetary aggregate, foreign exchange, Prices, Business Fluctuations, and Cycles: Forecasting and Simulation, Economywide Country Studies: Europe, Growth Inflation, (search for similar items in EconPapers)
Date: 2002-12-01
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Handle: RePEc:imf:imfwpa:02/231