Taking the Temperature - Forecasting GDP Growth for Mainland China
44 Pages Posted: 24 Jul 2007
Date Written: June 2, 2006
Abstract
We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model. Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index. These series are found to share a common, unobservable element from which our indicator can be identified. This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth. Recursive out-of-sample accuracy tests indicate that the small-scale factor model approach leads to a successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions.
Keywords: forecasting, china, leading indicator, factor model, growth cycles
JEL Classification: C32, C52, E32, E37
Suggested Citation: Suggested Citation
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