Predictive Ability of Business Cycle Indicators under Test
-
Kai Carstensen
,
Klaus Wohlrabe
Summary
In this paper we assess the information content of seven widely cited early indicators for the euro area with respect to forecasting area-wide industrial production. To this end, we use various tests that are designed to compare competing forecast models. In addition to the standard Diebold-Mariano test, we employ tests that account for specific problems typically encountered in forecast exercises. Specifically, we pay attention to nested model structures, we alleviate the problem of data snooping arising from multiple pairwise testing, and we analyze the structural stability in the relative forecast performance of one indicator compared to a benchmark model. Moreover, we consider loss functions that overweight forecast errors in booms and recessions to check-whether a specific indicator that appears to be a good choice on average is also preferable in times of economic stress. We find that none of this indicators uniformly dominates all its competitors. The optimal choice rather depends on the specific forecast situation and the loss function of the user. For 1-month forecasts the business climate indicator of the European Commission and the OECD composite leading indicator generally work well, for 6-month forecasts the OECD composite leading indicator performs very good by all criteria, and for 12-month forecasts the FAZ-Euro indicator published by the Frankfurter Allgemeine Zeitung is the only one that can beat the benchmark AR(1) model.
© 2011 by Lucius & Lucius, Stuttgart
Artikel in diesem Heft
- Titelei
- Inhalt / Contents
- Special Issue on Economic Forecasts: Guest Editorial
- Abhandlungen / Original Papers
- Information or Institution?
- Forecasting with Factor Models Estimated on Large Datasets: A Review of the Recent Literature and Evidence for German GDP
- A Factor Model for Euro-area Short-term Inflation Analysis
- Combining Survey Forecasts and Time Series Models: The Case of the Euribor
- Predictive Ability of Business Cycle Indicators under Test
- Forecasting Nonlinear Aggregates and Aggregates with Time-varying Weights
- Forecasting Multivariate Volatility using the VARFIMA Model on Realized Covariance Cholesky Factors
- Practice and Prospects of Medium-term Economic Forecasting
- Buchbesprechungen / Book Reviews
Artikel in diesem Heft
- Titelei
- Inhalt / Contents
- Special Issue on Economic Forecasts: Guest Editorial
- Abhandlungen / Original Papers
- Information or Institution?
- Forecasting with Factor Models Estimated on Large Datasets: A Review of the Recent Literature and Evidence for German GDP
- A Factor Model for Euro-area Short-term Inflation Analysis
- Combining Survey Forecasts and Time Series Models: The Case of the Euribor
- Predictive Ability of Business Cycle Indicators under Test
- Forecasting Nonlinear Aggregates and Aggregates with Time-varying Weights
- Forecasting Multivariate Volatility using the VARFIMA Model on Realized Covariance Cholesky Factors
- Practice and Prospects of Medium-term Economic Forecasting
- Buchbesprechungen / Book Reviews
