Composite Leading Indicators and Growth Cycles: Major OECD Non-Member Economies

Composite Leading Indicators and Growth Cycles in Major OECD Non-Member Economies and Recently New OECD Member
Countries
Ronny Nilsson Statistics Directorate OECD
1
Topics
Composite Leading Indicators for Individual Countries Evaluation of Indicators (Non-OECD) Characteristics of leading indicators Cyclical properties of CLIs Growth Cycles and Reference Series New and old Reference series for OECD Area and OECD Europe Area New Area Aggregates Timing Relationship of Individual Countries with New Area Aggregates Composite Leading Indicators for New Zone Aggregates
2
Evaluation of Indicators Major OECD Non-Member Economies

Methods used to evaluate Cyclical Performance Turning Point Analysis - Mean/median lead, standard deviation at turning points, extra or missing cycles Cross-correlation Average lead at max correlation Cross Spectral Analysis - Coherence (explained variance) and Mean Delay Dynamic Factor Analysis - Common component variance/indicator variance, - Cross-correlation between common components - Cyclical timing classification (mean delay)
3
Criteria used for Timing Classification of indicators by country and subject area
Cross Spectral Analysis NBER Analysis Dynamic Factor Analysis
Mean delay leading = value > 1 Median lead leading = > 2 periods Common component cross-correlation leading = coef. > 0.50 and positive lag
4
Cyclical Evaluation Results by Country

Country Number of indicators tested Cross Spectral Analysis (1) Lead % Brazil China India Indonesia Russia South Africa Total 21 26 30 23 22 26 148 42.8 7.7 10.0 17.4 50.0 11.5 21.6 Coin % 52.4 88.5 43.3 52.2 50.0 77.0 60.8 Lag % 4.8 2.8 46.7 30.4 0.0 11.5 17.6 NBER Analysis (2) Dynamic Factor Analysis (3) Lead % 23.8 0.0 10.0 30.4 27.3 7.7 15.5 Coin % 76.8 100.0 76.7 56.5 63.6 88.5 77.7 Lag % 0.0 0.0 13.3 13.1 9.1 3.8 6.8
5
Lead % 66.7 50.0 43.3 56.5 72.7 69.2 58.8
Coin % 9.5 38.5 50.0 26.1 27.3 23.1 30.4
Lag % 23.8 11.5 6.7 17.4 0.0 7.7 10.8
Cyclical Evaluation Results by Subject

Subject Area Number of indicators tested Cross Spectral Analysis (1) Lead Coin % % Tendency Surveys Real External Financial 50 37 33 28 26.0 13.5 24.2 25.0 68.0 59.5 54.6 57.1 NBER Analysis (2) Dynamic Factor Analysis (3) Lag % 6.0 5.4 6.0 7.1
6
Lag Lead Coin % % % 6.0 27.0 21.2 17.9 72.0 54.0 57.6 57.1 22.0 32.4 30.3 28.6
Lag Lead Coin % % % 6.0 13.5 12.1 14.3 10.0 13.5 27.3 14.3 84.0 81.1 66.7 78.6
Selection of Potential Component Series for Construction of Composite Indicators

Criteria Cyclical behaviour at turning points - median lead - standard deviation at turning points - number of extra and missing turning points
Practical issues - timeliness of the latest data available (t+2) - frequency (delay for timely data, if quarterly frequency) - smoothness (irregular series (MCD 5 or 6) will imply revisions due to smoothing)
7
Characteristics of Leading Indicators

General problems Data Availability restricted to few subject areas and indicators (see table below)
Short time period of available data for many indicators back to 1990/96 in all countries except Brazil (79), South Africa (75), New Zealand (80) and China (83) Frequency of many good indicators is quarterly, this concerns most business and consumer tendency series (South Africa and New Zealand)
Timeliness a particular problem for series with quarterly frequency (Brazil, India, South Africa and New Zealand)
8
Characteristics of CLIs Major OECD Non-member Economies

Country Starting Extra (x), Smoothness Median lead (+) at Standard Cross date missing (m) MCD/ turning deviation correlation (2) cycles/ QCD points (TP) total number Peak Trough All TP Lead Coef. of cycles (1) (+) x, m total 1979 2x 8 1 4 4 4 4.5 2 0.61 1983 1m 6 1 3 4 4 6.5 6 0.70 1995 0 2 1 1 2 1 0.8 3 0.89 1993 1m 4 1 7 3 7 9.3 3 0.68 1994 0 2 1 10 10 10 8.8 4 0.72 1975 0 6 1 4 6 5 10.3 5 0.73 1955 1959 1961 1972 1m 1x 1x 2x 13 11 11 8 1 1 1 1 7 9 7 7 4 5 2 6 6 8 3 7 3.6 5.4 4.3 5.0 5 6 6 8
9
All series Brazil China India Indonesia Russia South Africa United States Japan Germany United Kingdom
0.77 0.84 0.72 0.66
Characteristics of CLIs Recently New OECD Member Countries

Country Starting Extra (x), Smoothness Median lead (+) at Standard Cross date missing (m) MCD/ turning deviation correlation (2) cycles/ QCD points (TP) total number Peak Trough All TP Lead Coef. of cycles (1) (+) x, m total 1991 0 7 1 9 6 7 3.8 7 0.73 1987 2x 3 1 5 6 5 6.0 10 0.69 1992 m 5 1 4 4 4 4.6 9 0.59 1993 1 m 4 1 7 8 8 7.3 5 0.55 1993 1x 4 1 5 10 6 4.2 8 0.64 1994 1 m 5 1 6 11 8 4.3 7 0.65 1955 1959 1961 1972 1m 1x 1x 2x 13 11 11 8 1 1 1 1 7 9 7 7 4 5 2 6 6 8 3 7 3.6 5.4 4.3 5.0 5 6 6 8
10
All series Korea New Zealand Czech Republic Hungary Poland Slovak Republic United States Japan Germany United Kingdom
0.77 0.84 0.72 0.66
Characteristics of CLIs for New Countries Compared to CLIs for Major OECD Countries
General fit (peak-correlation) with reference series is rather good for most countries for Eastern European countries a weaker correlation is noted Median and peak-correlation leads show inconsistent results for several countries (Indonesia, Russia, New Zealand) Variability of lead at all TPs as measured by standard variation is high in several countries (China, Indonesia, Russia, South Africa, New Zealand and Hungary)
11
Composite Leading Indicator - Brazil

Brazil: Composite Leading indicator and Industrial production Ratio to Trend
120 120
115
115
110
110
105
105
100
100
95
95
90
90
85
BrazilIIP BrazilCLI
85
80 Jan-75
80 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05
12
Composite Leading Indicator - China

China: Composite Leading Indicator and industrial production Ratio to Trend
110 110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94
94
92
ChinaIIP ChinaCLI Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05
92
90 Jan-83
90
13
Composite Leading Indicator - India

India: Composite Leading Indicator and Industrial production Ratio to Trend
106 106
104
104
102
102
100
100
98
98
96 IndiaIIP IndiaCLI
96
94 Jan-95
94 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
14
Composite Leading Indicator- Russia

Russia: Composite Leading Indicator and Industrial production Ratio to Trend
120 120
115
115
110
110
105
105
100
100
95
95
90
90
85
RussiaIIP RussiaCLI
85
80 Jan-93
80 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
15
Composite Leading Indicator South Africa

South Africa: Composite Leading Indicator and Industrial production Ratio to Trend
130 125
125
120
120
115
115 110 110 105 105 100 100 95 95 90
90
85
SouthAfricaIIP SouthAfricaCLI Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03
85
80 Jan-75
80 Jan-05
16
Composite Leading Indicator Korea

Korea: CompositeLeading Indicator and industrial production Ratio to Trend
112 112
107
107
102
102
97
97
92
92
87
KoreaIIP KoreaCLI
87
82 Jan-91
82 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
17
Composite Leading Indicator Hungary

Hungary: Composite Leading Indicator and Industrial production Ratio to Trend
110 110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94 HungaryIIP HungaryCLI
94
92
92
90 Jan-93
90 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
18
Composite Leading Indicator Poland

Poland: Composite Leading Indicator and Industrial production Ratio to Trend
110 110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94
94
92
PolandIIP PolandCLI
92
90 Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
90 Jan-06
19
Conclusions
CLI evaluation results encouraging but they are based on a very short time period with only 2 or 3 growth cycles registered in all countries (except Brazil) CLI components restricted to a few subject areas - financial indicators (> 50% in India and Indonesia) - tendency surveys (> 50% in Russia and South Africa) Timeliness and revisions is a problem for the calculation of regular monthly CLIs with quarterly components from business or consumer tendency surveys Coverage of component series in OECD databases is a condition for the calculation of regular monthly CLIs - High share of selected component for several countries require special data collection arrangements
20
New and Old Reference Series for OECD Area and OECD Europe Area
OECD Total Area: Reference Series, Industrial Production Ratio to Trend
110 110 108 108 106 106 104 104
102
102
100
100
98
98
96
96
94 OECDOld OECDNew
94
92
92
90 Jan-61
OECD Europe Area: Reference Series, Industrial Production Ratio to Trend

108 108
106
106
104
104
102
102
100
100
98
98
96
96
94
OECDEuropeOld OECDEuropeNew
94
92 Jan-62
21
New Regional or Area Aggregates
OECD Eastern Europe share is 7.5 % of OECD Europe Area country weights (GDP at PPP) in %, Czech R. 21.1, Hungary 15.8, Poland 52.6, Slovak R. 10.5 Major Five Asian Economies share is close to 35% of World Proxy country weights, China 44.4, India 20.9, Indonesia 4.9, Japan 23.6, Korea 6.2 World Proxy (OECD + major 6 OECD non-members) covers 83.1 % of World GDP (OECD 57.1) country weights, Brazil 3.2, China 15.3. India 7.2, Indonesia 1.7, Russia 3.0, South Africa 1.1, United States 25.0, Japan 8.1
22
Timing Relationship of Individual Countries with New Area Aggregates
OECD Eastern Europe Hungary and Poland coincident and well correlated Czech and Slovak better against Europe as a whole Russia shows leading tendency, but weak correlation no major difference against Europe and Euro Area Asia Major 5 Area China, India and Japan coincident and well correlated Korea coincident, but weak correlation Australia, New Zealand and Indonesia show weak or not significant correlation
23
Timing Relationship of Growth Cycles in Individual Countries with New Area Aggregates
World Proxy (OECD Area + Major 6 OECD Non members) China and India show leading tendency against World Proxy and median leads of 5-3 months against OECD Area Korea and New Zealand show leading tendency against World Proxy and OECD Area, but weak correspondence with OECD Area Brazil, Russia and South Africa show lagging tendency and Russia and South Africa also shows weak correspondence against World Proxy and OECD area Eastern European countries show lagging tendency and extremely weak correspondence against World Proxy and OECD Area with exception of Poland
24
Hungary, Poland and OECD Eastern Europe

110 110 108 108
106
106
104
104
102
102
100
100
98
98
96
96
94 EasternEurope 92 Hungary Poland 90 Jan-93
94
92
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
90 Jan-06
25
Czech R., Slovak R., Russia and OECD Eastern Europe

110 110
105
105
100
100
95
95
90
EasternEurope SlovakRepublic CzechRepublic Russia
90
85 Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
85 Jan-06
26
OECD Europe, Euro Area and OECD Eastern Europe

106 106
104
104
102
102
100
100
98
98
96 EasternEurope OECDEurope EuroZone 94 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
96
94 Jan-06
27
China, India and Asia Major 5 Economies

110 110 108 108
106
106
104
104
102
102
100
100
98
98
96 AsiaMajor5 94 China India 92 Jan-95
96
94
28
Japan, Korea and Asia Major 5 Economies

115 115 110 110
105
105
100
100
95
95
90
90
85
AsiaMajor5 Japan Korea
85
80 Jan-95
29
Australia, New Zealand, Indonesia and Asia Major 5 Economies

120 120 115 115
110
110
105
105
100
100
95
95
90
AsiaMajor5 Australia NewZealand Indonesia
90
85 Jan-95
30
Timing Relationship of Growth Cycles in New and Established Area Aggregates against OECD Area and World Proxy
Euro Area/OECD Europe/OECD Eastern Europe - All European aggregates show a tendency to lag against both OECD Area and World Proxy NAFTA (North American Free Trade Area) - shows a coincident behaviour against both OECD Area and World Proxy Asia Major 5 Area - shows a leading tendency against both OECD Area and World Proxy with clear median lead of 4 months against the OECD Area
31
OECD Area, OECD Europe Area, NAFTA and Asia Major 5 Economies
110 OECD 108 AsiaMajor5 OECDEurope NAFTA 106 106 108 110
104
104
102
102
100
100
98
98
96
96
94
94
92 Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
92 Jan-06
32
World Proxy, OECD Area, Brazil and South Africa

112 OECDMajor6NME OECD SouthAfrica Brazil 112 110 110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94
94
92 Jan-95
33
CLIs for New Area Aggregates Cyclical Characteristics 1995-2005
World Proxy CLI shows a median lead of 2 months and a peakcorrelation of 0.92 at a lead of 3 months Asia Major 5 Area CLI shows a median lead of 3 months and a peakcorrelation of 0.85 at a lead of 3 months OECD Eastern Europe CLI shows a median lead of 4 months, but a peakcorrelation of only 0.39 at a lead of 7 months
34
World Proxy OECD area + Major 6 NMEs

106 106
104
104
102
102
100
100
98
98
96 OECDBig6IIP OECDBig6CLI 94 Jan-95
96
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
94 Jan-06
35
Asia Major 5 Economies

110 110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94
AsiaMajor5IIP AsiaMajor5CLI
94
92 Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
92 Jan-06
36
OECD Eastern Europe

108 108
106
106
104
104
102
102
100
100
98
98
96
96
94
OECDEasterEuropeIIP OECDEasternEuropeCLI
94
92 Jan-93
92 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
37
Publication and References
http://www.oecd.org/std/cli
Nilsson Ronny and Olivier Brunet, 2006. Composite Leading Indicators for Major OECD Non-Member Economies: Brazil, China, India, Indonesia, Russian Federation and South Africa, OECD Statistics Working Paper STD/DOC(2006)1, available at http://www.olis.oecd.org/olis/2006doc.nsf/LinkTo/std-doc(2006)1 OECD, 2006. Composite Leading Indicators for Major OECD NonMember Economies and Recently New OECD Member Countries, Unclassified Document available at http://www.oecd.org/document/60/0,2340,en_2649_34349_36674300 _1_1_1_1,00.html
38

Composite Leading Indicators and Growth Cycles: Major OECD Non-Member Economies

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Composite Leading Indicators and Growth Cycles: Major OECD Non-Member Economies

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Composite Leading Indicators and Growth Cycles in Major OECD Non-Member Economies and Recently New OECD Member

Evaluation of Indicators Major OECD Non-Member Economies

Cross Spectral Analysis NBER Analysis Dynamic Factor Analysis

Cyclical Evaluation Results by Country

Lead % 66.7 50.0 43.3 56.5 72.7 69.2 58.8

Coin % 9.5 38.5 50.0 26.1 27.3 23.1 30.4

Lag % 23.8 11.5 6.7 17.4 0.0 7.7 10.8

Cyclical Evaluation Results by Subject

Selection of Potential Component Series for Construction of Composite Indicators

Characteristics of Leading Indicators

Characteristics of CLIs Major OECD Non-member Economies

0.77 0.84 0.72 0.66

Characteristics of CLIs Recently New OECD Member Countries

0.77 0.84 0.72 0.66

Composite Leading Indicator - Brazil

Composite Leading Indicator - China

Composite Leading Indicator - India

Composite Leading Indicator- Russia

Composite Leading Indicator South Africa

115 110 110 105 105 100 100 95 95 90

Composite Leading Indicator Korea

Composite Leading Indicator Hungary

Composite Leading Indicator Poland

OECD Europe Area: Reference Series, Industrial Production Ratio to Trend

New Regional or Area Aggregates

Timing Relationship of Individual Countries with New Area Aggregates

Hungary, Poland and OECD Eastern Europe

94 EasternEurope 92 Hungary Poland 90 Jan-93

Czech R., Slovak R., Russia and OECD Eastern Europe

EasternEurope SlovakRepublic CzechRepublic Russia

OECD Europe, Euro Area and OECD Eastern Europe

China, India and Asia Major 5 Economies

96 AsiaMajor5 94 China India 92 Jan-95

Japan, Korea and Asia Major 5 Economies

AsiaMajor5 Japan Korea

Australia, New Zealand, Indonesia and Asia Major 5 Economies

AsiaMajor5 Australia NewZealand Indonesia

World Proxy, OECD Area, Brazil and South Africa

CLIs for New Area Aggregates Cyclical Characteristics 1995-2005

World Proxy OECD area + Major 6 NMEs

96 OECDBig6IIP OECDBig6CLI 94 Jan-95

Asia Major 5 Economies

OECD Eastern Europe

Publication and References

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