Open AccessConstructing a Coincident Economic Indicator for India: How Well Does It Track Gross Domestic Product?
Author(s) -
Soumya Bhadury,
Saurabh Ghosh,
Prasanna Kumar
Publication year - 2021
Publication title -
asian development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.487
H-Index - 23
eISSN - 1996-7241
pISSN - 0116-1105
DOI - 10.1142/s0116110521500104
Subject(s) - gross domestic product , real gross domestic product , quarter (canadian coin) , economic indicator , economics , sample (material) , recession , gross domestic income , econometrics , macroeconomics , geography , public economics , chemistry , archaeology , tax reform , chromatography , gross income , state income tax
In India, the first official estimate of quarterly gross domestic product (GDP) is released approximately 7–8 weeks after the end of the reference quarter. To provide an early estimate of current quarter GDP growth, we construct Coincident Economic Indicators for India (CEIIs) using a sequentially expanding list of 6, 9, and 12 high-frequency indicators. These indicators represent various sectors, display high contemporaneous correlation with GDP, and track GDP turning points well. CEII-6 includes domestic economic activity indicators, while CEII-9 incorporates indicators of trade and services and CEII-12 adds financial indicators in the model. We include a financial block in CEII-12 to reflect the growing influence of the financial sector on economic activity. CEIIs are estimated using a dynamic factor model which extracts a common trend underlying the high-frequency indicators. The extracted trend provides a real-time assessment of the state of the economy and helps identify sectors contributing to economic fluctuations. Furthermore, GDP nowcasts using CEIIs show considerable gains in both in-sample and out-of-sample accuracy. In particular, we observe that our GDP growth nowcast closely tracks the recent slowdown in the Indian economy.