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Forecasting Industrial Production and the Early Detection of Turning Points

By Giancarlo Bruno and Claudio Lupi

Abstract

In this paper we propose a simple model to forecast industrial production in Italy. We show that the forecasts produced using the model outperform some popular forecasts as well as those stemming from a trading days- and outlier-robust ARIMA model used as a benchmark. We show that the use of appropriately selected leading variables allows to produce up to twelve-step ahead reliable forecasts. We show how and why the use of these forecasts can improve the estimate of a cyclical indicator and the early detection of turning points for the manufacturing sector. This is of paramount importance for short-term economic analysis.Forecasting, Forecast Encompassing, VAR Models, Industrial Production, Cyclical Indicators

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