INTERNATIONAL INTERDEPENDENCE OF BUSINESS CYCLES IN THE MANUFACTURING-INDUSTRY - THE USE OF LEADING INDICATORS FOR FORECASTING AND ANALYSIS

This article introduces new leading indicators for fifteen industriali zed countries which enable the business cycle in manufacturing to be f orecast fairly reliably between 4 and 6 months ahead. These indicators are based on an improved variant of the NBER method, yielding a compo site leading indicator characterized by less erratic movements and cle ar tuning points. The indicators are used to explore the international interdependence of business cycles and to examine the degree to which this interdependence is affected by growing economic integration, as in the EC. For each of the countries studied, the various foreign econ omies affecting the local business climate are identified. Since the b usiness cycles of some countries clearly lead those of others, this in ternational interdependence can be used to further improve the predict ive power of the leading indicators in the lagging countries.