When Wall Street conflicts with Main Street-The divergent movements of Taiwan's leading indicators

4Citations
Citations of this article
7Readers
Mendeley users who have this article in their library.
Get full text

Abstract

This paper argues that the simultaneous use of all leading indicators may result in the blending of two different sets of information, which could lead to less accurate predictions of a future recession. We divide six of Taiwan's leading indicators into two different sectors, the real and financial sectors, and distinctly demonstrate that the two sectors may very well reveal different information. Three inconsistent, or even divergent, movements are found for 1988, 1991 and 1994, implying that the factor extracted from the real side may be different from that from the financial side. Thus, in contrast to the one-factor model typically used, we suggest a two-factor model. We compare four Markov Switching models, and it is evident that the predicted recessions based on the two-factor one-state model seem to outperform other models. The second best is the one-factor model which is only based on the real side variables, followed by the one-factor model with four variables. The worst model is that which simply uses financial variables. The results support our argument to use the two-factor model. © 2005 International Institute of Forecasters.

Cite

CITATION STYLE

APA

Chen, S. W., & Shen, C. H. (2006). When Wall Street conflicts with Main Street-The divergent movements of Taiwan’s leading indicators. International Journal of Forecasting, 22(2), 317–339. https://doi.org/10.1016/j.ijforecast.2005.09.005

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free