Question

Describe and explain the typical behavior of the Conference Board’s Composite Indexes of Leading, Coincident and Lagging Indicators: Explain in detail.

1. 6 months before the beginning of an economic recession.

2. 6 months after the beginning of an economic recession?

Answer 1

ANSWER : -

Composite indexes of coincident and leading indicators of economic activity were first developed to respond to policymakers’ needs for a reliable indication of economic activity in advance of the release of the relevant statistical data. A coincident indicator can be broadly defined as a variable that is correlated with the current level of economic activity

A composite indicator is constructed by compiling individual indicators into a single index, based on an underlying model of the multi-dimensional concept that is being measured4 . The Composite Economic indicators (CEI) are the most used composite indicators and the components that build these indicators usually origins from statistics.

Composite Economic indicator (CEI,) concept Some Definitions Macroeconomic indicators mainly explains the short-term economic development in the economy. They can be divided in two groups; cyclical indicators following a reference series, i.e. GDP, and noncyclical indicators that measure special phenomena such as productivity or competitiveness. These indicators aim to measure the state of, and efficiency in, the national economy. Cyclical indicators (with reference series), which are the most common cyclical indicators, measures the business cycle development. They show the same cyclical pattern as their reference series, usually GDP or IPI. They can be leading, coincident or lagging in their pattern toward the reference series. Non-cyclical indicators do not show the same pattern as GDP, but can give additional information of the short-term economic change. They do not usually have reference series and may be based on mathematical models. They may seem less transparent for users. 6 See also chapter 4. Composite economic indicators Macroeconomi indicators Cyclical indicators Sentiment components Other components Non-cyclical indicators Sentiment components Other compoments