1. Ronny Nilsson Statistics Directorate OECD
Composite Leading Indicators and Growth Cycles in Major OECD Non-Member Economies and Recently New OECD Member Countries
Ronny Nilsson
Statistics Directorate
OECD

2. 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

3. 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)

4. Criteria used for Timing Classification of indicators by country and subject area
Cross Spectral Analysis Mean delay
leading = value > 1
NBER Analysis Median lead
leading = > 2 periods
Dynamic Factor Analysis Common component
cross-correlation leading = coef. > and positive lag

5. Cyclical Evaluation Results by Country

6. Cyclical Evaluation Results by Subject

7. 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)

8. 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)

9. Characteristics of CLIs Major OECD Non-member Economies

10. Characteristics of CLIs Recently New OECD Member Countries

11. 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)

12. Composite Leading Indicator - Brazil

13. Composite Leading Indicator - China

14. Composite Leading Indicator - India

15. Composite Leading Indicator- Russia

16. Composite Leading Indicator – South Africa

17. Composite Leading Indicator – Korea

18. Composite Leading Indicator – Hungary

19. Composite Leading Indicator – Poland

20. 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

21. New and Old Reference Series for OECD Area and OECD Europe Area

22. 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 India 7.2, Indonesia 1.7, Russia 3.0, South Africa 1.1,
United States 25.0, Japan 8.1 ……………………

23. 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

24. 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

25. Hungary, Poland and OECD Eastern Europe

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

27. OECD Europe, Euro Area and OECD Eastern Europe

28. China, India and Asia Major 5 Economies

29. Japan, Korea and Asia Major 5 Economies

30. Australia, New Zealand, Indonesia and Asia Major 5 Economies

31. 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

32. OECD Area, OECD Europe Area, NAFTA and Asia Major 5 Economies

33. World Proxy, OECD Area, Brazil and South Africa

34. CLIs for New Area Aggregates Cyclical Characteristics 1995-2005
World Proxy
- CLI shows a median lead of 2 months and a peak- correlation of 0.92 at a lead of 3 months
Asia Major 5 Area
- CLI shows a median lead of 3 months and a peak- correlation of 0.85 at a lead of 3 months
OECD Eastern Europe
- CLI shows a median lead of 4 months, but a peak- correlation of only 0.39 at a lead of 7 months

35. World Proxy OECD area + Major 6 NMEs

36. Asia Major 5 Economies

37. OECD Eastern Europe

38. Publication and References
Nilsson Ronny and Olivier Brunet, 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
OECD, Composite Leading Indicators for Major OECD Non-Member Economies and Recently New OECD Member Countries, Unclassified Document available at