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Keywords:

  • leading indicator;
  • turning points;
  • growth cycle;
  • real-time case study;
  • euro area

ABSTRACT

This paper introduces a new monthly euro Area-wide Leading Indicator (ALI) for the euro area growth cycle which is composed of nine leading series and derived from a one-sided bandpass filter. The main findings are that (i) the GDP growth cycle in the euro area can be well tracked, in a timely manner and at monthly frequency, by a reference growth cycle indicator (GCI) derived from industrial production excluding construction, (ii) the ALI reliably leads turning points in the GCI by 5 months and (iii) longer leading components of the ALI are good predictors of the GCI up to 9 months ahead. A real-time case study on the ALI's capabilities for signalling turning points in the euro area growth cycle from 2007 to 2011 confirms these findings. Copyright © 2013 John Wiley & Sons, Ltd.