The OECD system of Composite Leading Indicators (CLIs) is designed to provide early signals of turning points in business cycles – fluctuation in the output gap, i.e. fluctuation of the economic activity around its long term potential level. This approach, focusing on turning points (peaks and troughs), results in CLIs that provide qualitative rather than quantitative information on short-term economic movements.
The phases and patterns in CLIs are likely to be followed by the business cycle. The chart below presents the CLI and the estimated business cycle for the OECD area. The two series show strong co-movements, with the turning points of the CLI consistently preceding those of the business cycle; lead time varies, but 6 – 9 months is at what the OECD aims.
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