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Alternative Weighting Approaches To Computing Indexes Of Economic Activity

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  • G.C. Lim
  • Viet Hoang Nguyen

Abstract

This paper compares the weighting schemes in the traditional, principal component and dynamic factor approaches to summarizing information from a number of component variables. To facilitate the comparison, we propose a framework to discuss the approaches with respect to their implied loadings in a latent variable model. We also propose a way to transform the dynamic factor index into an analogous index which is a weighted average of the components. The framework shows the strengths and weakness of the alternative weighting schemes and the sense in which the dynamic factor approach has the advantage of capturing both the significance and the variability of the components.

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  • G.C. Lim & Viet Hoang Nguyen, 2015. "Alternative Weighting Approaches To Computing Indexes Of Economic Activity," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 287-300, April.
    • Handle: RePEc:bla:jecsur:v:29:y:2015:i:2:p:287-300
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    File URL: http://hdl.handle.net/10.1111/joes.12053
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    References listed on IDEAS

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    Cited by:

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    5. Amélie Charles & Olivier Darné & Fabien Tripier, 2018. "Uncertainty and the macroeconomy: evidence from an uncertainty composite indicator," Applied Economics, Taylor & Francis Journals, vol. 50(10), pages 1093-1107, February.
    6. Tausch, Arno & Heshmati, Almas, 2014. "Testing an EU-Candidate's Place on the Maps of Global Economic, Political and Social Values: The Case of Turkey," IZA Discussion Papers 8163, Institute of Labor Economics (IZA).

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