Does ECRI’s WLI Remain a Usable Indicator?

In our continued endeavor to understand Economic Cycle Research Institute’s Weekly Leading Index (WLI), and what it actually represents, we now discovered that the index is excessively driven by one of its components, the ratio of “ten year treasury bond yield” to “BAA corporate bond yield.” A further component of the WLI is M2, a downgraded and obsolete leading indicator of the economy(*). Together these two components, which reflect US monetary policy, seemingly are causing the excessive movements of the WLI. We consequently believe that the WLI has become unable to provide leading information for the U.S. economy.

The full article you can read here

(*) 2013-03-25 Why is M2 Still a Component of ECRI’s WLI? (co-authored with Anton Vrba)

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