%0 Report %1 NBERw2772 %A Stock, James H. %A Watson, Mark W. %B Working Paper Series %D 1988 %K dynamics macro model business_cycles state_space kalman_filter %N 2772 %T A Probability Model of The Coincident Economic Indicators %U http://www.nber.org/papers/w2772 %X The Index of Coincident Economic Indicators, currently compiled by the U.S. Department of Commerce, is designed to measure the state of overall economic activity. The index is constructed as a weighted average of four key macroeconomic time series, where the weights are obtained using rules that dare to the early days of business cycle analysis. This paper presents an explicit rime series model (formally, a dynamic factor analysis or "single index" model) that implicitly defines a variable that can be thought of as the overall state of the economy. Upon estimating this model using data from 1959-1987, the estimate of this unobserved variable is found to be highly correlated with the official Commerce Department series, particularly over business cycle horizons. Thus this model provides a formal rationalization for the traditional methodology used to develop the Coincident Index. Initial exploratory exercises indicate that traditional leading variables can prove useful in forecasting the short-run growth in this series.

@techreport{NBERw2772, abstract = {The Index of Coincident Economic Indicators, currently compiled by the U.S. Department of Commerce, is designed to measure the state of overall economic activity. The index is constructed as a weighted average of four key macroeconomic time series, where the weights are obtained using rules that dare to the early days of business cycle analysis. This paper presents an explicit rime series model (formally, a dynamic factor analysis or "single index" model) that implicitly defines a variable that can be thought of as the overall state of the economy. Upon estimating this model using data from 1959-1987, the estimate of this unobserved variable is found to be highly correlated with the official Commerce Department series, particularly over business cycle horizons. Thus this model provides a formal rationalization for the traditional methodology used to develop the Coincident Index. Initial exploratory exercises indicate that traditional leading variables can prove useful in forecasting the short-run growth in this series.}, added-at = {2013-03-14T00:48:07.000+0100}, author = {Stock, James H. and Watson, Mark W.}, biburl = {https://www.bibsonomy.org/bibtex/226082fb1020dc21863275f64c7896c24/jp}, description = {A Probability Model of The Coincident Economic Indicators}, institution = {National Bureau of Economic Research}, interhash = {c0d6df9996d95078f1473da33d1e472d}, intrahash = {26082fb1020dc21863275f64c7896c24}, keywords = {dynamics macro model business_cycles state_space kalman_filter}, month = {November}, number = 2772, series = {Working Paper Series}, timestamp = {2013-05-09T03:21:30.000+0200}, title = {A Probability Model of The Coincident Economic Indicators}, type = {Working Paper}, url = {http://www.nber.org/papers/w2772}, year = 1988 }