Toward a Better Measure of Real Time Economic Conditions: An Application of the Stock/Watson Methodology to the Case of Rhode Island

Abstract

This study develops an economic indicator tailored to measure economic conditions at the state level by recognizing a state's economy is an integrated part of the region and responds to both regional and national economic outlooks. This paper applies our methodology to the state of Rhode Island. In the case of Rhode Island, the addition of a regional economic indicator appears to make a significant improvement over the the Philadelphia FED Coincident Index. Moreover, the robustness analysis above shows that economic indicator developed to tracks the business cycles in Rhode Island perform quite well and that the indicator is robust to various identification schemes. Therefore, we believe this preliminary study indicates that it is worthwhile to expand this project to include all fifty states.