A new leading indicator of UK quarterly GDP growth

Catherine Mathieu () and Françoise Charpin ()
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Catherine Mathieu: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po
Françoise Charpin: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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Abstract: This paper presents a new leading indicator of UK output growth. The aim of the indicator is to forecast quarterly real GDP growth over a two-quarter horizon, using latest available information, mainly on a monthly basis, such as survey data, or on a daily basis, such as financial data (interest rates and exchange rates) and raw materials prices. We adopt a model where GDP growth relies on the Index of Production, the Retail Sales Index, survey data in the manufacturing sector, retail and wholesale trade, financial services and short-term interest rates. The indicator is built on a two-step regression-based approach. First, we estimate an equation for the quarterly GDP growth rate based on coincident and leading series. Second, we estimate monthly and/or quarterly equations which will be used to forecast the coincident and leading series showing a lead of less than six months. This enables us to forecast GDP growth for the current and coming quarters. We check that the indicator would have produced a satisfactory outcome over the last four years.

Date: 2004-09
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