Evaluating the suitability of qualitative leading indicators as economic forecasting tools

Blanca Moreno Cuartas

Departamento de Economía Aplicada

Avda del Cristo s/n, 33006 Oviedo

Phone Number: 34985105052

E-mail: morenob@correo.uniovi.es

Ana Jesús López Menéndez

Departamento de Economía Aplicada

                                                Avda del Cristo s/n, 33006 Oviedo

Phone Number: 34985103759

E-mail: anaj@correo.uniovi.es

ABSTRACT

Economic forecasts can be obtained using both quantitative or qualitative information.

Qualitative forecast uses information given by the economy agents when asked about their opinion of the future direction of the economy. On this basis, it is possible to construct leading indicators allowing the identification of turning points and the development of economic forecasts.

The main aim of this paper is the evaluation of the usefulness and rationality of qualitative leading indicators as economic forecasting tools. In order to achieve this objective, tests of direction are employed.

We focus on probabilistic forecasts, computing the probability of a turning-point in the qualitative leading indicator. Since the leading indicator signals are assumed to happen before the economy turning points, this method allows the obtention of economic forecasts.