Making leading indicators more leading: A wavelet-based method for the construction of composite leading indexes

Marco Gallegati

OECD Journal: Journal of Business Cycle Measurement and Analysis, 2014, vol. 2014, issue 1, 1-21

Abstract: This paper proposes a novel wavelet-based approach for constructing composite indicators. The wavelet-based methodology exploits the ability of wavelet analysis to analyse the relationships between variables on a scale-by-scale, rather than aggregate, basis. A wavelet-based index which combines several scale-based subindexes is constructed by using a scale-by-scale selection of the components included in the OECD composite leading indicator (CLI) for the US. The comparison with the CLI and its derived measures indicate that the wavelet-based composite index tends to provide early signals of business cycle turning points well in advance of the OECD CLI. Moreover we find that the reliability of the signals tends to increase considerably when the sub-index obtained from the time scale components corresponding to minor cycles, that is, 2-4 years, is removed from the overall wavelet-based index. Keywords: wavelets; composite leading indicators; early warning signals JEL classification: C1; C3; C5; E3

JEL-codes: C1 C3 C5 E3 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1787/jbcma-2014-5jxx56gqmhf1 (text/html)
Full text available to READ online. PDF download available to OECD iLibrary subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oec:stdkab:5jxx56gqmhf1

Access Statistics for this article

More articles in OECD Journal: Journal of Business Cycle Measurement and Analysis from OECD Publishing, Centre for International Research on Economic Tendency Surveys Contact information at EDIRC.
Bibliographic data for series maintained by ().