A comparison of methods for the construction of composite coincident and leading indexes for the UK

In this paper, we provide an overview of recent developments in the methodology for the construction of composite coincident and leading indexes, and apply them to the UK. In particular, we evaluate the relative merits of factor based models and Markov switching specifications for the construction of coincident and leading indexes. For the leading indexes, we also evaluate the performance of probit models and pooling. The results indicate that alternative methods produce similar coincident indexes, while there are more marked differences in the leading indexes. (c) 2007 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.