The Leading Indicators of the Economic Cycles in Lithuania

Abstract

Identification of leading indicators that precede economic events and predict the next phase of business cycle is undoubtedly important issue seeking to protect the country against the recession or other negative economic events. The paper analyses potential leading indicators and identifies the best predictors of the business cycles in Lithuania. Various economic, industrial, financial, real estate market indicators as well as consumer and business expectations are analysed in order to find which of them cause the changes in growth rate of GDP. The analysis is based on Granger causality test and autoregressive distributed lag model. The research shows that considered economic indicators are weak predictors of the growth rate of GDP. Volume index of intermediate goods production is the best predictor in the group of industry data as it holds predictive attributes even three years before the changes in economics. That can be also said about two financial indicators, i.e. short-term interest rate and the value of stock market index. Real estate market data such as residential buildings permits and growth rate in house price index can also warn about the changes in the growth rate of GDP two years before. Nevertheless, consumer and business expectations are the most important for prediction of the changes in the growth rate of GDP.

DOI: http://dx.doi.org/10.5755/j01.ee.28.3.16705