A coincident indicator for the swedish economy

Abstract

Economic indicators are important for economic decisions. However, the indicators published by the National Institute of Economic Research (NIER) give information for parts of the whole economy; the Gross Domestic Product from Statistics Sweden is published quarterly, and with great delay. Economic decisions frequently need timely information about the state of the economy. The aim of this study is to construct a coincident indicator for the Swedish economy, which is timely and describe the state of economy. Using 68 monthly and 93 quarterly time series collected from Statistics Sweden and NIER databases I apply the factor model techniques developed by Stock and Watson (2002a), to constructed two composite coincident indicators. The new indicators are close to GDP growth rate with correlation 0.80 and 0.83; 98 and 99 percent of correct signal is predicted respectively by the monthly and quarterly indicators. The RMSFE and MAE are approximately 0.87 percentage point and 0.64 percentage points. The indicators describe the state of economic activity; moreover the monthly composite coincident indicator can provide very timely and useful information about the state of the economy