Leading Indicators In A Globalised World
Using OECD Composite Leading Indicators (CLI), the authors assess empirically whether the ability of the country-specific CLIs to predict economic activity has diminished in recent years, e.g. due to rapid advances in globalisation. Overall, they find evidence that the CLI encompasses useful information for forecasting industrial production, particularly over horizons of four to eight months ahead. The evidence is particularly strong when taking cointegration relationships into account. At the same time, they find indications that the forecast accuracy has declined over time for several countries. Augmenting the country-specific CLI with a leading indicator of the external environment and employing forecast combination techniques improves the forecast performance for several economies.