Answer to Question #315640 in Macroeconomics for Hes

Question

5. Discuss some of the important criticisms of the forecasting ability of the leading economic

indicators.

Answer 1

It is not easy to asses how good the leading indicators are a forecaster. In some cases, the leading indicators fail to precisely forecast lead times. It cannot be denied that there are several drawbacks of leading indicators. For instance, a change in the index cannot reflect exact amount of change in any economic activity. The most important thing is that when the structure of the economy changes, some indicators may not be able to provide a correct prediction anymore.