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Introducing the Euro Area‐wide Leading Indicator (ALI): Real‐Time Signals of Turning Points in the Growth Cycle from 2007 to 2011
Author(s) -
Bondt Gabe J.,
Hahn Elke
Publication year - 2014
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.2273
Subject(s) - hodrick–prescott filter , turning point , business cycle , real gross domestic product , economics , econometrics , macroeconomics , physics , period (music) , acoustics
This paper introduces a new monthly euro Area‐wide Leading Indicator (ALI) for the euro area growth cycle which is composed of nine leading series and derived from a one‐sided bandpass filter. The main findings are that (i) the GDP growth cycle in the euro area can be well tracked, in a timely manner and at monthly frequency, by a reference growth cycle indicator (GCI) derived from industrial production excluding construction, (ii) the ALI reliably leads turning points in the GCI by 5 months and (iii) longer leading components of the ALI are good predictors of the GCI up to 9 months ahead. A real‐time case study on the ALI's capabilities for signalling turning points in the euro area growth cycle from 2007 to 2011 confirms these findings. Copyright © 2013 John Wiley & Sons, Ltd.