An evaluation of forecasting using leading indicators

An evaluation of forecasting using leading indicators

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Article ID: iaor19971184
Country: United Kingdom
Volume: 15
Issue: 4
Start Page Number: 271
End Page Number: 291
Publication Date: Jul 1996
Journal: International Journal of Forecasting
Authors: ,
Keywords: economics
Abstract:

This paper considers the use of indices of leading indicators in forecasting and macro-economic modelling. The procedures used to select the components and construct the indices are examined, noting that the composition of indicator systems gets altered frequently. Cointegration within the indices, and between their components and macro-economic variables are considered as well as the role of co-breaking to mitigate regime shifts. Issues of model choice and data-based restrictions are investigated. A framework is proposed for index analysis and selecting indices, and applied to the UK longer-leading indicator. The effects of adding leading indicators to macro models are considered theoretically and for UK data.

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