No. 114. PREDICTING GROWTH AND RECESSIONS USING LEADING INDICATORS: EVIDENCE FROM GREECE
E. Tsouma. 2010.
In this paper we use selected individual leading indicators, including business expectation indices, to construct a composite leading indicator of Greek economic activity by applying a dynamic factor model. We investigate the growth and recession forecasting ability of the derived leading indicator within a bivariate VAR specification and a probit model framework, respectively. We use data covering the January 2000-March 2010 period. The evidence supports the use of business expectation indicators for the construction of the composite leading indicator. The latter appears to possess satisfactory leading properties with regard to forecasting growth, as indicated by in-sample and out-of-sample analysis and forecasting recessions as indicated by the fitted recession probabilities.