Abstract
AbstractThis paper evaluated the performance of OECD's Composite Leading Indicator using the Continuous Wavelet Transform. We used various wavelet tools ‐ wavelet coherency, wavelet phase and wavelet phase difference ‐ to assess the co‐movement between the Composite Leading Indicator and three macroeconomic variables ‐ Industrial Production Index, unemployment rate, and real GDP Growth ‐ at each frequency and moment. We also explored the lead–lag relationship between each pair of variables across time and frequency. We concluded that OECD's Composite Leading Indicator is a useful leading indicator of the Industrial Production Index and can be suited for forecasting the unemployment rate. However, it exhibited poor performance regarding GDP growth.
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