A monthly leading indicator of Swiss GDP growth based on Okun’s law

Abstract

Abstract We propose a unique method of nowcasting and forecasting GDP growth based on a forward-looking measure of unemployment (FLUR) and Okun’s law that offers a number of advantages over current leading indicators of the Swiss business cycle. The following investigation, covering the period from 1991/1 to 2021/4, demonstrates that our approach outperforms an AR(1) model of GDP growth equally well as the popular Business Cycle Index of the Swiss National Bank and the KOF Barometer with respect to year-to-year growth, but less so in regard to quarter-to-quarter changes. Our findings suggest that our approach offers a reliable and useful indicator to policymakers seeking easily compiled information on the current and future course of the Swiss economy at monthly time intervals.

Keywords

• Leading indicator
• Higher-frequency data
• GDP growth
• Unemployment
• Okun’s law