Predicting recessions and recoveries in real time: The euro area-wide leading indicator (ALI)

Elke Hahn and Gabe de Bondt

No 1246, Working Paper Series from European Central Bank

Abstract: This study develops a new monthly euro Area-wide Leading Indicator (ALI) for the euro area business cycle. It derives the composite ALI by applying a deviation cycle methodology with a one-sided band pass filter and choosing nine leading series. Our main findings are that i) the applied monthly reference business cycle indicator (BCI) derived from industrial production excluding construction is close to identical to the real GDP cycle, ii) the ALI reliably leads the BCI by 6 months and iii) the longer leading components of the ALI are good predictors of the ALI and therefore the BCI up to almost a year ahead and satisfactory predictors by up to 2 years ahead. A real-time analysis for predicting the euro business cycle during the 2008/2009 recession and following recovery confirms these findings. JEL Classification: E32

Keywords: business cycle; Deviation cycle; euro area; Leading Indicator; Real‐time analysis (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-cba, nep-eec, nep-for and nep-mac
Note: 854549
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101246

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