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A New Monthly Indicator of Global Real Economic Activity

Ravazzolo, Francesco; Vespignani, Joaquin L.
Working paper
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URI
http://hdl.handle.net/11250/2364615
Date
2015
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  • Centre for Applied Macro- and Petroleum economics (CAMP) [124]
Abstract
In modelling macroeconomic time series, often a monthly indicator of global real economic

activity is used. We propose a new indicator, named World steel production, and compare it

to other existing indicators, precisely the Kilian’s index of global real economic activity and

the index of OECD World industrial production. We develop an econometric approach based

on desirable econometric properties in relation to the quarterly measure of World or global

gross domestic product to evaluate and to choose across different alternatives.

The method is

designed to evaluate short-term, long-term and predictability properties of the indicators.

World steel production is proven to be the best monthly indicator of global economic activity

in terms of our econometric properties. Kilian’s index of global real economic activity also

accurately predicts World GDP growth rates. When extending the analysis to an out-ofsample

exercise, both Kilian’s index of global real economic activity and the World steel

production produce accurate forecasts for World GDP, confirming evidence provided by the

econometric properties. Specifically, a forecast combination of the three indices produces

statistically significant gains up to 40% at nowcast and more than 10% at longer horizons

relative to an autoregressive benchmark.
Series
CAMP Working Papers Series;2/2015

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