Working Paper: NBER ID: w25778
Authors: James D. Hamilton
Abstract: A number of economic studies have used a proxy for world real economic activity derived from shipping costs. This measure turns out to depend on a normalization that has substantive consequences of which users of the index had been unaware prior to this paper. This paper further evaluates this and alternative measures in terms of treatment of trends, coherence with world output, and ability to predict commodity prices. I conclude that measures derived from world industrial production offer a better indicator of global real economic activity.
Keywords: Global Economic Activity; Shipping Costs; Industrial Production; Commodity Prices
JEL Codes: E01; Q02
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Normalization process of the Kilian index (C43) | Perceived levels of global economic activity (F69) |
| Sequence of shipping costs initialized with a different value (L87) | Measure of real economic activity (E01) |
| Kilian index (C43) | Accuracy of reflecting global economic downturns (F44) |
| Cyclical component derived from world industrial production (F44) | Measure of economic activity (E01) |
| World industrial production as a leading indicator (E23) | Forecasting results for commodity prices (Q47) |
| Kilian index (C43) | Description of economic activity (E01) |