Template-Type: ReDIF-Paper 1.0
Author-Name: Heij, C.
Author-Name-Last: Heij
Author-Name-First: Christiaan
Title: Improved forecasting with leading indicators: the principal covariate index
Abstract: We propose a new method of leading index construction that combines the need  for data compression with the objective of forecasting. This so-called principal  covariate index is constructed to forecast growth rates of the Composite Coincident Index. The forecast performance is compared with an alternative index based on  principal components and with the Composite Leading Index of the Conference Board.  The results show that the new index, which takes the forecast objective explicitly into  account, provides significant gains over other single-index methods, both in terms of  forecast accuracy and in terms of predicting recession probabilities.
Creation-Date: 2007-06-21
File-URL: https://repub.eur.nl/pub/10348/EI2007-23_paper.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2007-23
Classification-JEL: C32, C53, E17
Keywords: business cycles, index construction, principal  covariate, principal component, time series forecasting, turning points
Handle: RePEc:ems:eureir:10348