THE COMPOSITE LEADING INDICATOR FOR GERMAN BUSINESS CYCLE
Tkacova Andrea, Gavurova Beata, Behun Marcel
composite leading indicator, business cycle, gross domestic product, cyclical indicators, cross correlation
Monitoring and predicting economic cycles have returned to the awareness of economists with the impact of the economic crisis in 2007/2008. To determine the current and future state of the country’s economic cycle, Composite Leading Indicators (CLI) can be used. Their structure is being dealt with by institutions at the national and international level (OECD, Eurostat). Correct predictions of public finance development and the entrepreneurship sphere are very important for competitiveness of the country. The aim of the paper is to propose a new Composite Leading Indicator (CLI) to monitor and predict the German economy. The analysis of 140 quantitative and qualitative indicators of industry, services, retail, construction, foreign trade, labor market, money aggregates, stock indices, confidence indicators, consumer expectations was performed for the needs of the indicator. As the reference series represents the German economic cycle, the GDP indicator is selected at constant prices for 2010. All selected quarterly time series are applied with seasonal index methods, the Hodrick-Prescott filter (HP filter) in the R program, cross-correlation with time shifts, methods selection and scoring, data standardization, identification of the same and different data and the subsequent construction of the CLI of the German economic cycle. The generated CLI can predict the German economy cycle two quarters ahead with a cross-correlation value of 0.867. The forecasting capabilities of the assembled indicator were better than the prediction capabilities of OECD, Eurostat and IFO indicator.
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Tkacova A., Gavurova B., Behun M. (2017). THE COMPOSITE LEADING INDICATOR FOR GERMAN BUSINESS CYCLE. Journal of Competitiveness, 9 (4), 114-133. https://doi.org/10.7441/joc.2017.04.08