At first blush, this strand of the literature does not seem directly of interest to the question of financial or currency crises. However, some papers^a suggest an important link, that banking and balance-of-payments crises are normally preceded by or contemporaneous with either recessions or below-normal economic growth. If this is the case, then these Conference Board-type leading indicators could function as early warning systems, or at least complement them. An interesting question also arises concerning the composition of the many early warning systems for financial crises as compared with leading indicators of an economy, say, the Conference Board Indexes of Leading Indicators. If in fact they are similar, then this again suggests their possible use as an early warning mechanism.

The Conference Board has a set of leading indicators, as well as sets of coincident and lagging indicators. These indicators, which were first constructed by the National Bureau of Economic Research, have been used in the United States since 1961. The U.S. Bureau of Census continued this work after the National Bureau turned over responsibility for maintaining the indexes to it in that year. The indexes were presented in its monthly government economic report, Business Cycle Developments. Recently, the responsibility for maintaining these indexes was transferred to the Conference Board. The latest composition of these indices is presented below. While they have not been 100 per cent accurate, they have arguably been of great help to policy makers, and the latest updates are awaited with anticipation by market watchers.

The Conference Board Composite Indexes of Indicators^b

Since the pioneering efforts of the National Bureau of Economic Research, other organizations have come up with their own leading indicators. For example, the American Institute for Economic Research regularly features its own primary leading, roughly coincident, and lagging indicators in its research papers.^c

The table below shows the components of the Institute's indicators for comparison with the Conference Board's counterparts shown above.

Components of American Institute for Economic Research indicatorsd

A comparison of the sets of leading indicators reveals that, while they are not exactly the same (the American Institute's leading indicator has 12 components to the Conference Board's 10 components), there is a remarkable commonality in the nature of the economic variables included, for example money supply, stock prices, housing etc. A similar finding holds for the coincident and lagging indicators of both institutions. This suggests validity in the type of variables included as components in the indicators and lends credence to the idea that there is an early warning system for the business cycle.

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Footnotes:

^a See in particular Daniel C. Hardy and Ceyla Pazarbasioglu, "Leading indicators of banking crises: was Asia different?", in IMF Working Paper, No. 91 (Washington DC, June 1998) and Graciela L. Kaminsky and Carmen M. Reinhart, "The twin crises: the causes of banking and balance-of-payments problems", The American Economic Review (June 1999), pp. 473-500.