In an endeavor to fill the void in
availability of comprehensive and yet all inclusive indicators for judging
relative country performances on the economic front, we have introduced an
indicator which allows a parsimonious representation of a variety of different
facets of economic performance and its comparison across countries and is thus
most useful in providing guidance to the relative stages of economic recovery
around the globe.
Forward looking monthly economic indicators
like, even the Purchasing Managers Indices (PMIs), estimated either officially
by the government or agencies, become subject to a much greater degree of
uncertainty during economic and financial crises. Survey based leading
indicators like PMIs are crucial but they do not and cannot cover the entire
spectrum of the actual economic variables. Alternatively, considering a range
of official monthly indicators leave open important questions of addressing
incommensurability among them, and also implicit weighting and aggregation
methods for arriving at a comprehensive picture of macroeconomic performance.
The need for a single measure, to compare all aspects of macroeconomic
performance, is accentuated by the fact that policies pursuing different
macroeconomic goals of growth and stability usually involve certain tradeoffs.
In the wake of global crises it becomes even more important to consider tools
for frequently comparing country-wise performances to evaluate and learn from
experiences.
We take the composite indicators approach that
consists in merging several available official monthly indicators of economic
wellbeing and financial sector conditions, into a single metric. In the
backdrop of the unprecedented crisis brought about by the COVID-19 outbreak, monthly
rankings of 21 countries with comparable data on chosen variables reveal the
severity of crisis across countries, the changing effects on economic wellbeing.
The Rank Mobility Indices clearly show the adverse effect of the pandemic on
emerging market economies, in the early stages of the pandemic, particularly
when world trade and production lines had been impaired and also confirms that
high levels of government debt can be debilitating specially under unprecedented
circumstances like this pandemic when the private sector has been forced to
downsize all over the globe.
As a composite indicator, the CPS is expected to
reveal, more comprehensibly, than a plethora of indicators, the relative
position of an economy at any point in time and provides us with a tool for
continuous evaluation of relative economic performances of countries over time
in crisis as also under normal circumstances. The TOPSIS ranking methodology is
robust such that the choice of variables also can be modified according to the
ready availability of coincident indicators or high frequency ones and/or to
suit specific evaluation needs. CPS based rankings and the RMIs would help in
assessing relative positions and provide readily a comprehensible picture of
the global economy overall. We hope these monthly rankings would help policy
makers, investors, and analysts to identify the short-term inter-temporal
changes in country performances and offer some timely actionable intelligence
over and above those provided by individual macro-financial indicators of
countries.
The paper is available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3905699
