engleski

Liquidity indicator for the Croatian economy – factor analysis approach

The aim of this paper was to continue the research process started in 2012 in developing new business survey liquidity indicator for Croatian economy. Simple business survey liquidity measure (calculated only) in manufacturing industry was defined as the balance between the weighted percentages of the positive (1) and negative (3) managers’ responses to the question: “Liquidity of your firm is: (1) good, (2) with temporary problems, (3) bad”. Forecasting properties of this indicator was confirmed. It can be a proxy of widely used Industrial confidence indicator (ICI). So, the changes in the liquidity measure can predict the direction of changes in industrial production with one or two quarters lead. However, since the Croatia´s business survey are conducted in manufacturing industry, retail trade and construction sector, the aim of this research was to form a new liquidity indicator by including business survey liquidity measures from all three covered economic sectors in Croatia’s economy, mentioned above. In calculating new leading indicator, factor analysis approach was used. This approach is usually used in calculating Business survey indicators according to harmonized EU Business survey methodology. However, this kind of indicator does not exist in Croatia, or in any other European economy. Furthermore, the issue of Croatian companies´ illiquidity is highly neglected in the literature. The empirical analysis consists of two parts. In the first part the new liquidity indicator was formed using factor analysis. Tree liquidity variables (in manufacturing industry, construction and in retail trade) were extracted in one factor. This factor represents the new liquidity indicator (LI) for the Croatian economy. In the second part, some econometric models were applied in order to investigate the forecasting properties of new business survey liquidity indicator, when predicting the direction of changes in Croatian macroeconomic aggregates. Based on the econometric analysis, it can be conclude that the new liquidity indicator can be a proxy of widely used business survey composite indicator like Economic Sentiment Indicator (ESI). The quarterly data covered the period from 2000/I to 2013/IV. The data sources were Privredni vjesnik and the Croatian Bureau of Statistics.

leading indicator; liquidity measure; factor analysis

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