Munich Personal RePEc Archive

PMI Thresholds for GDP Growth

Kilinc, Zubeyir and Yucel, Eray (2016): PMI Thresholds for GDP Growth.

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Abstract

In this study, we try to uncover the information capacity of the Purchasing Managers Index (PMI) as a leading indicator of GDP growth of euro area. Our results show that PMI carries a significant amount of information that can be used to forecast the growth rate in the current as well as subsequent quarters. In particular, having verified that a PMI level around 50 works as the threshold distinguishing between positive and negative rates of GDP growth, we establish a sequence of other PMI thresholds to signify certain levels of GDP growth. Our estimation strategy reveals asymmetric responses of GDP growth to unit changes in PMI before and after the estimated threshold levels.

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