The accuracy of turning point predictions with the Ifo Business Climate

The accuracy of turning point predictions with leading indicators, like the Ifo Business Climate, depends in particular on the length and the stability of their leads against a reference cycle. Since there is no leading indicator with a one-to-one relationship to the reference cycle, it is always difficult to distinguish between false and correct signals emitted by the indicator. The MCD (months for cyclical dominance) of the Ifo Business Climate is three. In other words, on average, you have to wait three months before you can be quite sure that a change in the direction of the development of the leading indicator is not random but a new trend.