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The authors evaluate the ability of the composite index of leading indicators to predict business cycle turning points. Formal probability-assessment scoring rules are applied to turning-point probabilities generated from the leading index via a Bayesian sequential probability recursion. These scoring rules enable rigorous and systematic evaluation of leading indicator forecasts. The results are used to assess the merits of forecasting with the composite leading index and to suggest possible improvements in its construction.
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Diebold et al. (1989) studied this question.
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