The purpose of this report is to look into the implication on the domestic economy by analyzing leading indicator, which showed rapid increase in 2009 but turned stagnant during 2010. Probability models such as Probit model, Regime shift model are used in this analysis. With regard to the advantage of this probability model, there is the quantitative criteria, which has 50 percent probability whether to experi-ence economic contraction for the future. Moreover, this criteria was turned out to be useful measure for forecasting economic contraction.
According to the probability models, probability of economic contraction is es-timated to be below 50 percent from June to December 2010, which means the con-traction phase will be less likely to happen in the near future. However, economic contraction probability on a rising trend implies economic downturn to be appeared in 2011. If growth rate of leading indicator for the future is below monthly average 0.1 percent, which leads to more than 50 percent of the economic contraction prob-ability, it is likely to face economic contraction phase in the future.
After the month-on-month growth rate recorded 3.2 percent in January 1973, an upswing in the 2009 composite leading indicator reached its highest point, which is the same as the rate in May 2002 (up by 2.3 percent from the previous month). After the growth rate of the composite leading indicator in 1973 and 2002 passed through the peak, the contraction period of the business cycle started up 14 months and 10 months later, respectively. Therefore, it supports the possibility of economic contraction in 2011. Due to differences of estimated values from probability models, when forecasting an economic cycle, a variety of forecasting models rather than just one should be considered.
According to the probability models, probability of economic contraction is es-timated to be below 50 percent from June to December 2010, which means the con-traction phase will be less likely to happen in the near future. However, economic contraction probability on a rising trend implies economic downturn to be appeared in 2011. If growth rate of leading indicator for the future is below monthly average 0.1 percent, which leads to more than 50 percent of the economic contraction prob-ability, it is likely to face economic contraction phase in the future.
After the month-on-month growth rate recorded 3.2 percent in January 1973, an upswing in the 2009 composite leading indicator reached its highest point, which is the same as the rate in May 2002 (up by 2.3 percent from the previous month). After the growth rate of the composite leading indicator in 1973 and 2002 passed through the peak, the contraction period of the business cycle started up 14 months and 10 months later, respectively. Therefore, it supports the possibility of economic contraction in 2011. Due to differences of estimated values from probability models, when forecasting an economic cycle, a variety of forecasting models rather than just one should be considered.