"Measuring
Global Real Economic Activity: Do Recent Critiques Hold Up to Scrutiny?"
CEPR Discussion Paper No. DP13455
CEPR Discussion Paper No. DP13455
LUTZ KILIAN, University of Michigan
at Ann Arbor - Department of Economics, Centre for Economic Policy Research
(CEPR)
Email: lkilian@umich.edu
Email: lkilian@umich.edu
Hamilton
(2018) suggests that the Kilian (2009) index of global real economic activity
is misleading and calls for alternative measures. The problem documented by
Hamilton is a consequence of a coding mistake. Specifically, the index of
nominal freight rates underlying the Kilian index was accidentally logged
twice. Once this coding error is corrected by removing one of the log
transformations, none of the concerns raised by Hamilton remains valid and the
index may be used as originally intended. Moreover, it can be shown that the
corrected index differs only slightly from the original index and that the key
empirical results in Kilian (2009) and related studies remain unchanged when
replacing the index.