Does a multi-sectoral design improve indicator-based forecasts of the GDP growth rate? Evidence from Switzerland

Abstract

This article presents a multi-sectoral composite indicator for the Swiss GDP growth rate, targeting a lead of two quarters. The in-sample period ranges from 1991 to 2002 and 14 data points are reserved as out of sample to assess the forecasting performance. The results appear promising, in terms of both phase and amplitude. Comparisons with two other uni-sectoral composite leading indicators for the same reference series - the traditional KOF (Konjunkturforschungsstelle) barometer as publisheduntil March 2006 and a uni-sectoral composite indicator computed from the same indicators as the multi-sectoral instrument - show that the new approach is superior to the alternatives, which is due to both its broader information basis as well as to the structure that is imposed by the multi-sectoral design. Yet, there are pronounced differences regarding the accuracy of the sectoral forecasts, so that there is scope for improvement. © 2010 Taylor & Francis