leading indicators for russia: did they actually lead during the crisis of 2008-2009
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Leading Indicators for Russia: Did They Actually Lead During the Crisis
of 2008-2009
French-Russian Academic and Research Conference ‘Economics, Politics, Society: New Challenges, New Opportunities’
Moscow, October 2010
State University – Higher School of Economics (Moscow, Russia)
“Development Center” Institute
Sergey Smirnov
Main Purpose & Limitations
Purpose Not to construct a new (‘really good’) leading
indicator But to test existing ones in their ability to predict
cyclical turning-points in ‘real-time’
Limitations Only last recession (2008-2010)
2
Three Consecutive Tasks To survey all available cyclical indicators for Russia To choose regularly (monthly) published between
them To check the last ones for their practical usefulness
in ‘real-time’
3
General Logic & MethodsMain question Was it actually possible to predict a turning point some months
before it occurred – relying on the dynamics of one or another leading indicator?
Some technical remarks All calculations are based on the concept of ‘growth rate cycles’
(not classic ‘business cycles’) Y-o-Y percent changes (‘a month to the same month of the previous
year’) are considered Official ‘basic branches of economy’ index is used as a proxy for
coincident cyclical index (CCI)
4
A Full Survey of Available Leading Indicators for Russia
Indicator Producer Fatal Shortcomings for Our Comparisons
Internationally Accepted Indexes for Russia
1 Purchasing Managers’ Index (PMI) Markit Economics No
2 Composite Leading Index (CLI) OECD No
Russian Indexes for Russia, Classic Type: Composite Leading Indexes
3 Composite Leading Index (CLI) Development Center (DC) No
4 Composite Leading Index (CLI) Institute of Economy (IE), Russian Academy of Science Figures never published
Russian Indexes for Russia, Classic Type: Indexes based on Business Tendency Surveys
5 Industrial Confidence Index (ICI) Higher School of Economics (HSE) No
6 Industrial Confidence Index (ICI) Rosstat Too short comparable time-series. Cyclical trajectory is quite similar to ICI’s by HSE
7 Industrial Optimism Index (IOI) The Institute for the Economy in Transition (IET) No
Russian Indexes for Russia: More Exotic
8 Leading GDP Indicator Renaissance Capital New Economic ‑School (RenCap-NES)
Short history. The indicators form rules out any ordinary comparisons with monthly indicators
9 Business Activity Index (BIF) ‘Finance.’ (one of Russian business journals)
Irregular news-releases. Too large of a publication lag (up to 3 months)
10 Business Activity Index (The Barometer)
‘Business Russia’ Association (‘Delovaya Rossiya’)
Too tangled of a methodology. Incomparability of neighboring observations. Short history.
11 Business Activity Index The Russian Managers Ass’n & Kommersant Newspaper
Too tangled of a methodology. Discontinued in April 2009
5
Five Indicators at Five Moments in the Past
5 moments in the past Oct. 2008 (shortly after the peak) Feb. 2009 (near the trough) July 2009 (shortly after the trough) April 2010 (before the peak) Oct. 2010 (just now)
5 regular & timely indicators PMI by Markit CLI by OECD CLI by DC ICI by HSE IOI by IET
6
-20
-15
-10
-5
0
5
10
15
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Per
cent
po
ints
Output of Basic Branches, Y-o-Y % change
May 2010
May 2009
Sept. 2008
5 regular & timely indicators
Indicator & Producer
Was it Useful to Forecast a Turning Point?
PMI by Markit Yes
CLI by OECD No
CLI by DC Yes
ICI by HSE No
IOI by IET Yes
Cyclical Dynamics as It Appeared in… October 2008 (shortly after the peak)
7
-5
0
5
10
15
20
25
Jan-
07F
eb-0
7M
ar-0
7A
pr-
07M
ay-0
7Ju
n-07
Jul-0
7A
ug-0
7S
ep-0
7O
ct-0
7N
ov-
07D
ec-0
7Ja
n-08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep
-08
Per
cent
po
ints
Output of Basic Branches PMI-MNF_Markit
CLI_OECD-September 2008 CLI_DC
ICI_HSE IOI_IET
Cyclical Dynamics as It Appeared in… February 2009 (near the trough)
5 regular & timely indicators
Indicator & Producer
Was it Useful to Forecast a Turning Point?
PMI by Markit May be
CLI by OECD No
CLI by DC Yes
ICI by HSE Yes
IOI by IET May be
8
-40
-30
-20
-10
0
10
20
Jan-
08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
No
v-08
Dec
-08
Jan-
09
Per
cent
po
ints
Output of Basic Branches PMI-MNF_Markit
CLI_OECD-January 2009 CLI_DC
ICI_HSE IOI_IET
Cyclical Dynamics as It Appeared in… July 2009 (shortly after the trough)
5 regular & timely indicators
Indicator & Producer
Was it Useful to Forecast a Turning Point?
PMI by Markit Yes
CLI by OECD No
CLI by DC Yes
ICI by HSE Yes
IOI by IET Yes
9
-40
-30
-20
-10
0
10
20
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
No
v-08
Dec
-08
Jan-
09
Feb
-09
Mar
-09
Ap
r-09
May
-09
Jun-
09
Per
cent
po
ints
Output of Basic Branches PMI-MNF_Markit
CLI_OECD-June 2009 CLI_DC
ICI_HSE IOI_IET
Cyclical Dynamics as It Appeared in…April 2010 (before the peak)
5 regular & timely indicators
Indicator & Producer
Was it Usefulto Forecast a Turning Point?
PMI by Markit No
CLI by OECD No
CLI by DC Yes
ICI by HSE No
IOI by IET No
10
-30
-20
-10
0
10
20
30
40
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep
-09
Oct
-09
No
v-09
Dec
-09
Jan-
10
Feb
-10
Mar
-10
Per
cent
po
ints
Output of Basic Branches PMI-MNF_Markit
CLI_OECD-March 2010 CLI_DC
ICI_HSE IOI_IET
Cyclical Dynamics as It Appeared in… October 2010 (just now)
5 regular & timely indicators
Indicator & Producer
What is it saying to us about future growth rates?
PMI by Markit Slowdown
CLI by OECD Stability
CLI by DC A trough is near
ICI by HSE Stability
IOI by IET Acceleration
11
-30
-20
-10
0
10
20
30
40
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep
-09
Oct
-09
No
v-09
Dec
-09
Jan-
10
Feb
-10
Mar
-10
Ap
r-10
May
-10
Jun-
10
Jul-1
0
Aug
-10
Sep
-10
Per
cent
po
ints
Output of Basic Branches PMI-MNF_Markit
CLI_OECD-September 2010 CLI_DC
ICI_HSE IOI_IET
Was an Indicator Useful to Forecast Approaching Turning Point?
Indicator Oct. 2008 Febr. 2009 July 2009 June 2010
PMI by Markit Yes May be Yes No
CLI by OECD No No No No
CLI by DC Yes Yes Yes Yes
ICI by HSE No Yes Yes No
IOI by IET Yes May be Yes No
12
Conclusions Between monthly indicators the CLI
by DC is the champion! Its trajectory during this crisis looks like as if it is taken from a textbook (see the chart on the left)
Unexpected: CLI by OECD is almost entirely useless in forecasting turning points (because of too large a lag and maybe some ‘oversmoothing’)
Other leading indicators for Russia are more or less useful but their track records are not very impressive
13
-40
-30
-20
-10
0
10
20
30
40
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep
-08
No
v-08
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep
-09
No
v-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Per
cen
po
ints
Cyclical Indicators by DC
Leading Coincident Lagging
Possible Extensions Construction of weekly leading indicators for Russia Similar audit of leading indicators for other countries
(US, Germany, etc.)
14
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