Leading Indicators of Growth and Inflation in Turkey

IMF Working Papers, December 1, 2002

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Growth and inflation in Turkey have been volatile over the last two decades.
Objective: Investigate the predictive performance of economic indicators for inflation and real output growth in Turkey.

The forecasting ability of individual indicators is unstable.
A suitable combination of these unstable forecasts yields a forecast that reliably outperforms that generated by an autoregressive model.
A two-stage combination forecast obtained by taking the median of the top five performing individual forecasts reliably improves on autoregressive benchmarks.
The two-stage median-of-top-five forecast outperforms the combination forecast based on all the individual forecasts.

Two-stage combination forecast:
- Stage 1: Evaluate individual forecasts and rank performance.
- Stage 2: Take the median of the top five performing individual forecasts to form the final forecast.

Subjects: Asset prices, Consumer price indexes, Cyclical indicators, Economic forecasting, Economic growth, Inflation, Prices.
Keywords: AR benchmark, Asset prices, autoregressive benchmark, combination forecasts, consumer price index, Consumer price indexes, Cyclical indicators, Europe, forecasting result, Growth, growth rate, inflation, inflation targeting, leading indicators, price inflation, real GDP, sample statistic, Turkey, WP.

Combining unstable individual indicator forecasts, specifically via a median-of-top-five two-stage approach, provides more reliable out-of-sample forecasting performance for Turkey’s growth and inflation than simple autoregressive benchmarks or naïve combinations of all indicators.

Source: IMF Working Paper — "Leading Indicators of Growth and Inflation in Turkey" (Working Paper No. 2002/231, December 1, 2002).