1. 1 Basic Financial or Economic Data Handling

2. 2 Changing Indices and Base Changing Frequency (stock vs. flow var.) Nominal vs. Real Logs (linearizing trend or model, interpretation) Diffrencing (Stationarity) Growth Rates Basic Financial or Economic Data Handling

3. Let`s get some Data Let`s go to the website of Council for Economic Planning and Development. http://www.cepd.gov.tw/encontent/ Taiwan Business Indicators / Business Indicators Database / (new Window opens) Composite Indicators and GDP/ 3

4. Let`s get some Data Cont. Data Frequency: Monthly Data Period: From Year 2001 Month 1 To Year 2010 Month 12 Advances:Do not check any box Series: Composite leading index Submit 4

5. Let`s get some Data Cont. Export Excel Save Rename your file as “Composite Leading Index” 5

6. Composite Leading Index 6

7. Composite Leading Index: Definition The Composite Index of Leading Indicators is published monthly and it is a trend adjusted index. It is a number that is used by many economic participants to judge what is going to happen in the near future. By looking at the Composite Index of Leading Indicators in the light of business cycles and general economic conditions, investors and businesses can form expectations about what's ahead, and make better-informed decisions. 7

8. Composite Leading Index: Components The Taiwanese composite leading index is made up of 7 economic components, whose changes tend to precede changes in the overall economy. These 7 components include 1)SEMI book-to-bill ratio, 2)Index of producer's inventory for manufacturing, 3)Average monthly overtime in industry and services, 4)Real monetary aggregates M1B, 5)Index of export orders 6)Stock price index 7)Building permits 8

9. Note: Book-to-Bill Ratio A book-to-bill ratio compares current customers (orders taken) to previous customers (invoices sent). This is a tool used to calculate whether demand for a good or service is rising or falling. A book-to-bill ratio of less than one indicates falling demand, while a ratio of greater than one shows growth, after accounting for seasonal or other fluctuation. The semi-conductor industry makes particular use of this ratio. SEMI in the composite index stands for semi-conductor industry. 9

10. Changing Base Date 10

11. 11 Reducing the frequency –If variable is stock variable (CPI, Stock Price) Specific date (beginning, middle, end) Average of the periods –If variable is flow variable (GDP, Profit, Savings) Sum of the periods Increasing the frequency (Manufactured data) Changing Frequency

12. Data: Exchange Rates TW p3 (CBC) 12

13. 13 A dominating Price Component can obscure: –Fundamental feature of a nominal serie and/or –Comparison of two nominal series To remedy this problem –Nominal series can be converted to real series via an appropriate deflator Nominal vs. Real

14. 14 Logarithmic transformation of a serie –Linearize trend –Linearize a model that is non-linear in parameters –Help with the interpretation of the parameters Logs

15. Log in SPSS Data: Stock Price Index Creating Log values: Transform / Compute Variable Ln_X = ln(X) 15 Original Name of the Variable New Name after log transformation given by the researcher SPSS’s log function ln( )

16. 16 Differencing –Removes trend entirely and renders it Stationary –  Operator is distributive A stationary process is a stochastic process whose parameters such as the mean and variance, do not change over time or position. Diffrencing (  Operator)

17. Differencing in SPSS Data: Stock Price Index Date in Ascending order: Data / Sort Cases Differencing : Transform / Create Time Series Function: Difference Order: 1 Variable: X 17

18. 18 Growth Rates

19. 19 Growth Rates can be computed ( discrete or continuous ) as: –Month on (previous) Month –Quarter on (previous) Quarter –Month on (one year ago) Month Also called: year on year using monthly data –Quarter on (one year ago) Quarter Also called: year on year using quarterly data Growth Rates

20. Growth Rates in SPSS Data: Stock Price Index Date in Ascending order: Data / Sort Cases Declaring lag value: lag(X, 1) Computing Growth Rate: Transform / Compute Variable 20

21. 21 END