NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Index of Leading Indicators: "Measurement without Theory," Twenty-Five Years Later

Alan J. Auerbach

NBER Working Paper No. 761 (Also Reprint No. r0428)
Issued in September 1981
NBER Program(s):   EFG

The index of leading economic indicators first developed by the NBER remains a popular informal forecasting tool in spite of the original criticism that its use represents "measurement without theory. " This paper seeks to evaluate the performance of the index in comparison to alternative time series methods in predicting business cycle behavior. While the actual method of choosing the weights for the twelve series included in the index is essentially unnecessary (because the resulting series is indistinguishable from another with uniform weights) the series itself helps explain business cycle behavior, and outperforms an index with econometrically chosen weights.

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Document Object Identifier (DOI): 10.3386/w0761

Published: Auerbach, Alan J. "The Index of Leading Indicators: Measurement without Theory, Thirty-Five Years Later." The Review of Economics and Statistics, Vol. 64, No. 4 (November 1982), pp. 589-595.

 
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