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
Brazil
China
India
Indonesia
Russia
South
Africa
Total
Number
of
indicators
tested
Cross Spectral
Analysis
(1)
NBER Analysis
(2)
Dynamic Factor
Analysis
(3)
Lead
%
Coin
%
Lag
%
Lead
%
Coin
%
Lag
%
Lead
%
Coin
%
Lag
%
21
26
30
23
22
26
42.8
7.7
10.0
17.4
50.0
11.5
52.4
88.5
43.3
52.2
50.0
77.0
4.8
2.8
46.7
30.4
0.0
11.5
66.7
50.0
43.3
56.5
72.7
69.2
9.5
38.5
50.0
26.1
27.3
23.1
23.8
11.5
6.7
17.4
0.0
7.7
23.8
0.0
10.0
30.4
27.3
7.7
76.8
100.0
76.7
56.5
63.6
88.5
0.0
0.0
13.3
13.1
9.1
3.8
148
21.6
60.8
17.6
58.8
30.4
10.8
15.5
77.7
6.8
5
Cyclical Evaluation Results by Subject
Subject
Area
Tendency
Surveys
Real
External
Financial
Number
of
indicators
tested
Cross Spectral
Analysis
(1)
NBER Analysis
(2)
Dynamic Factor
Analysis
(3)
Lead Coin
%
%
Lag Lead Coin
%
%
%
Lag Lead Coin
%
%
%
Lag
%
50
26.0
68.0
6.0
72.0
22.0
6.0
10.0
84.0
6.0
37
33
28
13.5
24.2
25.0
59.5
54.6
57.1
27.0
21.2
17.9
54.0
57.6
57.1
32.4
30.3
28.6
13.5
12.1
14.3
13.5
27.3
14.3
81.1
66.7
78.6
5.4
6.0
7.1
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
All series
Brazil
China
India
Indonesia
Russia
South Africa
United States
Japan
Germany
United Kingdom
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
0.77
0.84
0.72
0.66
9
Characteristics of CLIs
Recently New OECD Member Countries
Country
All series
Korea
New Zealand
Czech Republic
Hungary
Poland
Slovak Republic
United States
Japan
Germany
United Kingdom
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 ½ 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
0.77
0.84
0.72
0.66
10
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
80
Jan-75
85
BrazilIIP
BrazilCLI
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
12
Jan-05
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
90
Jan-83
92
ChinaIIP
ChinaCLI
90
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
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
96
IndiaIIP
IndiaCLI
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
80
Jan-93
RussiaIIP
RussiaCLI
85
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
80
Jan-75
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
16
80
Jan-05
Composite Leading Indicator – Korea
Korea: CompositeLeading Indicator and industrial production
Ratio to Trend
112
112
107
107
102
102
97
97
92
92
87
82
Jan-91
87
KoreaIIP
KoreaCLI
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
17
Jan-05
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
94
92
HungaryIIP
HungaryCLI
90
Jan-93
Jan-94
92
90
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
90
Jan-92
PolandIIP
PolandCLI
Jan-93
Jan-94
92
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
19
90
Jan-06
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
92
90
Jan-61
94
OECDOld
OECDNew
92
90
Jan-64
Jan-67
Jan-70
Jan-73
Jan-76
Jan-79
Jan-82
Jan-85
Jan-88
Jan-91
Jan-94
Jan-97
Jan-00
Jan-03
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
92
Jan-62
94
OECDEuropeOld
OECDEuropeNew
92
Jan-65
Jan-68
Jan-71
Jan-74
Jan-77
Jan-80
Jan-83
Jan-86
Jan-89
Jan-92
Jan-95
Jan-98
Jan-01
Jan-04
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
94
EasternEurope
92
Hungary
92
Poland
90
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
25
90
Jan-06
Czech R., Slovak R., Russia and
OECD Eastern Europe
110
110
105
105
100
100
95
90
95
90
EasternEurope
SlovakRepublic
CzechRepublic
Russia
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
26
85
Jan-06
OECD Europe, Euro Area and
OECD Eastern Europe
106
106
104
104
102
102
100
100
98
98
96
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
27
94
Jan-06
China, India and
Asia Major 5 Economies
110
110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
AsiaMajor5
94
94
China
India
92
Jan-95
92
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
28
Japan, Korea and
Asia Major 5 Economies
115
115
110
110
105
105
100
100
95
95
90
90
85
AsiaMajor5
85
Japan
Korea
80
Jan-95
80
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
29
Australia, New Zealand, Indonesia and
Asia Major 5 Economies
120
120
115
115
110
110
105
105
100
100
95
90
95
AsiaMajor5
90
Australia
NewZealand
Indonesia
85
Jan-95
85
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
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
110
OECD
108
AsiaMajor5
108
OECDEurope
NAFTA
106
106
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
32
92
Jan-06
World Proxy, OECD Area,
Brazil and South Africa
112
110
108
112
OECDMajor6NME
OECD
SouthAfrica
Brazil
110
108
106
106
104
104
102
102
100
100
98
98
96
96
94
94
92
Jan-95
92
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
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
96
OECDBig6IIP
OECDBig6CLI
94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
35
94
Jan-06
Asia Major 5 Economies
110
110
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94
92
Jan-95
AsiaMajor5IIP
AsiaMajor5CLI
Jan-96
94
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
36
92
Jan-06
OECD Eastern Europe
108
108
106
106
104
104
102
102
100
100
98
98
96
96
94
92
Jan-93
94
OECDEasterEuropeIIP
OECDEasternEuropeCLI
92
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-06
Jan-05
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