The small open hypothesis suggests that small open economies are crucially affected by foreign economic activity. This study compares the predictive content of traditional financial variables and foreign economic activity for forecasting GDP growth in seven European small open economies during...

In this paper a new method of constructing the leading economic index is presented. Its main advantage is the ability to distinguish domestic and foreign factors influencing the growth of economy and it is performed via dynamic hierarchical factor modelling. An application is carried out with...