Leading Indicators Approach for Business Cycle Forecasting and a Study on Developing a Leading Economic Indicators Index for the Turkish Economy

Ali Murutoglu

Istanbul Stock Exchange Review, 1999, vol. 3, issue 9, 21-40

Abstract: Business cycles, one of the main characteristics of developed countries’ economies, have begun to play an important role for the Turkish Economy. Especially after the 1994 crisis (which was one of the most severe one since the foundation of Turkish Republic) and the current slow-down of the economy (mainly because of the global crisis which stemmed from the south-east Asian countries and Russia), it has become vital to foresee the future of the economy (i.e. which phase the economy will be in the business cycle in the future) for the decision makers both in public and private sectors. Thus, it can be possible to take contrary actions to reduce the harmful effects of recessions. One method of short-term forecasting of economic condition is the Leading Economic Indicators Approach which is the subject of this study. In this study, after explaining business cycles and Leading Economic Indicators Approach to forecast the business cycles, I analyze nearly 50 economic time series to find a Leading Economic Indicators Index for the Turkish economy. The resulting index is comprised of nine economic series which are standardized and composed with equal weight to form “The Leading Indicators Index for the Turkish Economy”. The series are as follows; Total Import of Investment Goods, Total Import of Intermediate Goods, Currency, M2, Reserve Money, Deposit Money Banks’ Credits, Net Credit Volume, Consolidated Budget Monthly Expenditures, Total Capital of Newly Established Firms.

Date: 1999
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