BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 6/2006:
Taking the temperature – forecasting GDP growth for mainland China
Declan Curran and Michael Funke ()
Abstract: We present a new composite leading indicator of economic
activity in mainland China, es-timated using a dynamic factor model. Our
leading indicator is constructed from three se-ries: 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; (follow links to similar papers)
JEL-Codes: C32; C52; E32; E37; (follow links to similar papers)
44 pages, June 2, 2006
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