A desire to discover a preview of the future in the present makes people resort to various tricks. Predictions of economic development may be based on simple extrapolation, on sophisticated econometric models, on methods of “technical analysis”, on surveys of consumers and entrepreneurs, on observations that are unfit for formalization, made by experts and analytics, etc. System of leading indicators is one of the most widely used methods of anticipation of future economic activity. The idea behind this approach is simple and clear: there should be an “early warning” system to forecast when the economy will shift from expansion to recession (or on the contrary, from recession to expansion). In other words, we have to choose the indicators, which get to their turning points earlier than the economy in general.
Then, whenever the leading indicator gets to its peak or to its trough, we are able to predict a forthcoming peak or trough in the business activity in general. This idea was first put unto practice in the United States in the 1930’s. Regular publications of appropriate indicators were launched in the late 1960’s, and they are carried on today (see [5]). In the 1980’s, the OECD Statistics Directorate started construction of leading indicators for its member countries (see [6]). In the 1990’s, leading indicators for Turkey, Korea, Hungary, and Poland were developed under the supervision of the OECD (see [7a], [7c], [7d]). In addition to commonly used “official” indices, some “designers’ indicators” were introduced, with subtle variations in handling the initial statistical data (see, for example, [7b] and [8]).
Such indicators were never compiled for Russia. The single and sufficient reason for this shortcoming was the continuing industrial recession that looked as if would never bottom out. This recession was mainly the result of “transformation”, or the transition from a planned to a market-oriented economy. It would be have been odd to look for turning points against such a background. Moreover, the time span of several years (not decades) was too short to make a distinction between a long-term trend and cyclical or short term fluctuations.
Now the situation has changed. The transformation is completed in general, and a structural “break-up” is no longer a major factor in determining economic dynamics. The post-Soviet period has exceeded ten years, and long term trends have become visible. The crisis has obviously bottomed out, and we may speak about a cyclical reiteration of expansion and contraction. Therefore, we now have a set of new and interrelated tasks, which were impossible to solve in the past but have become vital and urgent at this time: to reveal expansion and contraction phases in the Russian economy after the reforms; to precisely date turning points of its cycle; to construct a system of leading indicators; to calculate a composite leading index (a certain weighted average of initial series) and a diffusion leading index (equal to the weight of the series with positive dynamics).
CONTENTS
1.INTRODUCTION
2. KEY METHODOLOGICAL AND STATISTICAL ISSUES
- 2.1 CHOICE OF A CONCEPT OF ECONOMIC CYCLES
2.2.DATING OF TURNING POINTS (CHOICE OF A REFERENCE INDICATOR)
2.3. SELECTION OF INITIAL LEADING INDICATORS
2.4. CALCULATION OF COMPOSITE LEADING INDEX AND DIFFUSION INDEX
3.MAIN RESULTS
- 3.1. TURNING POINTS IN THE RUSSIAN ECONOMIC DYNAMICS (1990-2000)
3.2. SELECTION OF INDICATORS FOR THE SYSTEM OF LEADING INDEXES
3.3. THE SYSTEM OF LEADING INDICATORS FOR RUSSIA
3.4. THE COMPOSITE LEADING INDEX FOR RUSSIA
3.5. DIFFUSION LEADING INDEX FOR RUSSIA
4.CONCLUSIONS
REFERENCES
SUPPLEMENT 1. REFERENCE SERIES AND POTENTIAL LEADING INDICATORS
SUPPLEMENT 2. EVALUATION PROCEDURE OF THE COMPOSITE LEADING INDEX
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