A Real Activity Index for Mainland China

Li-gang Liu, Wenlang Zhang and Jimmy Shek
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Li-gang Liu: Research Department, Hong Kong Monetary Authority
Wenlang Zhang: Research Department, Hong Kong Monetary Authority
Jimmy Shek: Research Department, Hong Kong Monetary Authority

No 707, Working Papers from Hong Kong Monetary Authority

Abstract: This paper develops a composite real activity index (RAI) using eight monthly activity indicators for the Mainland economy based on the methodology of the Conference Board. The RAI appears to be able to track the Mainland GDP growth quite well. The results from a logit regression indicate that the RAI can correctly predict the next movement of the quarterly GDP growth rate with a probability of up to 68 percent. In addition, the RAI can beat a random walk process when used to conduct forecasts. Compared with indexes constructed using alternative methods, the RAI has economic properties that are easier to interpret. While the predictability of the RAI can be enhanced further with better data, it is a useful leading indicator to help monitor the momentum of the aggregate activities of the Mainland economy before the official release of the quarterly GDP data.

Keywords: Real Activity Index; China; Dynamic Factor Model (search for similar items in EconPapers)
JEL-codes: C43 C53 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2007-05
New Economics Papers: this item is included in nep-cna and nep-for
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0707

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