COMPOSITE LEADING INDICATOR FOR TURKISH ECONOMIC ACTIVITY

Aslıhan Atabek (The Central Bank of the Republic of Turkey)
Evren Erdoğan Coşar (The Central Bank of the Republic of Turkey)
Saygın Çevik (The Central Bank of the Republic of Turkey)

The aim of this paper is to construct a composite leading indicator (CLI) for Turkish economic activity to provide earlier signals of turning points between expansions and slowdowns. For this analysis, firstly, it is necessary to select an indicator for economic activity, and industrial production index is used as a proxy for it. Secondly, a group of variables that perform well both in forecasting and tracking cyclical developments of the economic activity has to be selected. In this respect, a broad set of economic indicators related with industrial production are investigated. While constructing CLI, growth cycle approach is used and cyclical pattern of the series are obtained by eliminating seasonal, irregular and trend components via TRAMO/SEATS and HP filter. Selection of the component series is based on the leading performance at cylical turning points and their economic significance. From those selected series different composite leading indicator indices are constructed and the one with the best performance is chosen as the composite leading indicator for Turkish economic activity.