Abstract

AN INDICATOR MEASURING UNDERLYING ECONOMIC ACTIVITY IN GREECE

Stephen G. Hall

Imperial College Management School

Nicholas G. Zonzilos

Bank of Greece

ABSTRACT

Using a state space formulation developed by Stock and Watson and Garratt and Hall we construct an indicator, which then is interpreted as a measure of the underlying economic activity of the Greek economy. The chief novelty of the paper is that the underlying model is calibrated, rather than estimated, using sample information. Our approach is more flexible than the original one, in that it provides the possibility to cope with outlying observations and to evaluate particular shocks affecting the economy using judgmental interventions. The new indicator could be very helpful for short run policy analysis signalling emerging economic problems.

Keywords: Economic Activity; Coincident Indicator; Kalman Filter;

JEL classification: C22; E32

For encouragement and guidance, we are indebted to the Governor of the Bank of Greece, Nicholas C. Garganas. His ideas and continuous interest on our work have considerably improved the final product. Comments from the members of the Monetary Policy Committee of the Bank of Greece are also gratefully acknowledged. Special thanks go to George Tavlas and V. Stavrinos. The usual disclaimer applies.

Correspondence:

Nicholas G. Zonzilos
Economic Research Department,
Bank of Greece, 21 E. Venizelos Av.,
102 50 Athens, Greece,
Tel. +30210-320.2374, Fax +30210-3233025
Email: nzonzhlos@bankofgreece.gr