Faculty of Economics and Business Administration Publications Database

Constructing Leading Indicators from Non-balanced Sectoral Business Survey Series

Volume: 9
Number: 2
Pages: 211 - 225
ISSN-Print: 0169-2070
Year: 1993
Keywords: Survey data; Business cycle; Leading indicator; Spectral methods
Abstract: This paper considers the construction of leading indicators based on monthly survey data from the Ifo Institute, Munich. The three main points covered in the paper are: (a) The use of survey data at the sectoral level results in a longer leading indicator. By taking a non-balanced form of the survey answers and exploiting the information contained in ''no change'' responses through the use of canonical coherence, regressions on certain wave lengths lead to higher cross-spectral coherencies between the survey data and the actual business cycle, (b) Comparisons of frequency domain and time domain results for lead-lag relationships highlight the roles of seasonal and business cycles, (c) Out of sample forecasts reveal that the traditional balance concept is dominated by a weighted average of ''worse'' and ''equal'' responses. Surprisingly, the best results come from using the ''worse'' share.