Leading Indicators for Euro Area Inflation and GDP Growth

Anindya Banerjee, Massimiliano Marcellino and Igor Masten

No 3893, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we evaluate the role of a set of variables as leading indicators for Euro-area inflation and GDP growth. Our evaluation is based on using the variables in the ECB euro area model database, plus a set of similar variables for the US. We compare the forecasting performance of each indicator with that of purely autoregressive models, using an evaluation procedure that is particularly relevant for policy-making. The evaluation is conducted both ex-post and in a pseudo real time context, for several forecast horizons, and using both recursive and rolling estimation. We also analyse three different approaches to combining the information from several indicators. First, we discuss the use as indicators of the estimated factors from a dynamic factor model for all the indicators. Second, an automated model selection procedure is applied to models with a large set of indicators. Third, we consider pooling the single indicator forecasts. The results indicate that single indicator forecasts are on average better than those derived from more complicated methods, but for them to beat the autoregression a different indicator has to be used in each period. A simple real-time procedure for indicator-selection produces good results.

Keywords: Leading indicator; Factor model; Model selection; Gdp growth; inflation (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2003-05
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (47)

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Journal Article: Leading Indicators for Euro‐area Inflation and GDP Growth* (2005)
Working Paper: Leading Indicators for Euro-area Inflation and GDP Growth (2003)
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