Forecasting turning points of the Russian economic cycle with leading indicators

Abstract

In recent decades, predicting turning points of economic cycles (their peaks and troughs) using leading indicators has established itself as a fairly simple, clear and at the same time reliable method. But the world experience has shown that any system of leading indicators requires revision and clarification from time to time. The recent non-economic shocks experienced by the Russian economy have made urgent a full-scale revision of existing leading indicators. The article proposes a methodology for constructing a new index, which, one may hope, will not have the shortcomings of its predecessors. In the process of its construction, the dating of the peaks and troughs associated with previous recessions in the Russian economy was specified; the peculiarities of the cyclical dynamics of several dozens of time series were re-examined. The eight most promising indicators were aggregated into a composite leading indicator (CLI) using two alternative methods; we have chosen the one which is not only easier to use and update, but, apparently, with better predictive properties.