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PMI Thresholds for GDP Growth

Author

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  • Kilinc, Zubeyir
  • Yucel, Eray

Abstract

In this study, we try to uncover the information capacity of the Purchasing Managers Index (PMI) as a leading indicator of GDP growth of euro area. Our results show that PMI carries a significant amount of information that can be used to forecast the growth rate in the current as well as subsequent quarters. In particular, having verified that a PMI level around 50 works as the threshold distinguishing between positive and negative rates of GDP growth, we establish a sequence of other PMI thresholds to signify certain levels of GDP growth. Our estimation strategy reveals asymmetric responses of GDP growth to unit changes in PMI before and after the estimated threshold levels.

Suggested Citation

  • Kilinc, Zubeyir & Yucel, Eray, 2016. "PMI Thresholds for GDP Growth," MPRA Paper 70929, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70929
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    References listed on IDEAS

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    1. Lahiri, Kajal & Monokroussos, George, 2013. "Nowcasting US GDP: The role of ISM business surveys," International Journal of Forecasting, Elsevier, vol. 29(4), pages 644-658.
    2. Schnatz, Bernd & D'Agostino, Antonello, 2012. "Survey-based nowcasting of US growth: a real-time forecast comparison over more than 40 years," Working Paper Series 1455, European Central Bank.
    3. Huseyin Cagri Akkoyun & Mahmut Gunay, 2012. "Nowcasting Turkish GDP Growth," Working Papers 1233, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    4. Okan EREN, 2014. "Forecasting the Relative Direction of Economic Growth by Using the Purchasing Managers` Index," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(344), pages 55-72.
    5. Ethan S. Harris, 1991. "Tracking the economy with the purchasing managers' index," Research Paper 9124, Federal Reserve Bank of New York.
    6. Ethan S. Harris, 1991. "Tracking the economy with the purchasing managers' index," Quarterly Review, Federal Reserve Bank of New York, vol. 16(Aut), pages 61-69.
    7. Vermeulen, Philip, 2012. "Quantifying the qualitative responses of the output purchasing managers index in the US and the Euro area," Working Paper Series 1417, European Central Bank.
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    Citations

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    Cited by:

    1. Radoslaw Sobko & Maria Klonowska-Matynia, 2021. "The Relationship between the Purchasing Managers’ Index (PMI) and Economic Growth: The Case for Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 198-219.
    2. Liu, Ping & James Hueng, C., 2017. "Measuring real business condition in China," China Economic Review, Elsevier, vol. 46(C), pages 261-274.

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    More about this item

    Keywords

    Purchasing Managers Index; Leading Indicators; Thresholds;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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