Role of Economic Indicators

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In economics, an indicator is a statistic constructed to measure some dimensions of economic activity as objectively as possible. Their changes and their correlations with other variables are often analyzed using econometric methods.

The indicators are constructed by aggregating clues contained in a document. The construction of indicators is derived from a variety of agreements that reflect more or less certain priorities as well as ethical and moral values.

Economic indicators are often used in the assessment of shares, as concluded on the development of individual industrial sectors, which in turn affects the business prospects of each company. They enhance the visualization of macroeconomic developments and are needed especially where complex causal relationships are to be presented in condensed form.

Among the many economic indicators often used, the Gross Domestic Product (GDP) is most prominent, it monitors the rate of growth in measuring economic growth, and gross national product which compares the economies of individual nations. The consumer price index (CPI) is used the rate of inflation, while GNI index provides a glimpse of the distribution of wealth and income inequality. Many financial indicators are now used more often with the rise of financial globalization.

All in all, there are many different types of economic indicators which also include indexes, and they comprise the unemployment rate, housing starts, Consumer Leverage Ratio, industrial production, bankruptcies, broadband internet penetration, retail sales, stock market prices, etc.

The Human Poverty Index (HPI) was introduced from 1997. It is built under a different principle than that of Amartya Sen’s Capabilities. It points out the gaps, deprivation or exclusion of a fundamental part of the population, taking into account four factors: longevity, education, employment and living standards. Two variants of calculations are distinguished and these are Option 1 (HPI-1) for economically developing countries.

Option 2 (HPI-2) for the economically developed countries. For developed countries, the HPI-2 takes into account four criteria which must accord the same weight – the probability of dying before sixty years, illiteracy, the percentage of people below the poverty line, and the percentage of long-term unemployment.

Main economic indicators are those that have considerable influence on the development of economies or one that is believed by market participants. The great importance of economic indicators can be particularly seen through a visible impact on the national or international stock and bond markets, unless they differ in their expression of the expectations with the market participants.

These expectations are published by among others, economic institutes, economic research departments at major banks and major financial newspapers in advance. Quantitative indicators provide information on the volume development of a reference object information.



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