How to identify leading vs lagging indicator

I ran across a mock question on this and was stumped as well. I looked it up and there use to be an entire section dedicated to this, now the CFAI text is more geered towards advantages/disadvantages of using Econometric analysis, Economic indicators, and a checklist approach.
Back to your question:
Leading- something that changes before the economy as a whole changes (ie. stock market returns, consumer expectations, building permits, and money supply are examples).
Lagging- think the effect (CPI, labor cost, consumer credit)
 
I think taking mocks going back too many years has a concave utility.
Going back too many years will leave us exposed to this risk of looking at subject matter which have been modified or even eliminated,
 
I agree, I believe this was 2010 AM. I figured that is why you asked.
 
what are adv and disadv of using economic indicatoes vs. econometric approach?
 
Econometric can model complex relationships
indicators can give false signals. Leading indicators use econometric models though so not sure if it’s a fair question
 
Econometric Analysis:
Advantages- once established, can be reused. May accurately model real world conditions. Provides precise quantitative forecasts of economic conditions.
Disadvantages- Diff and time intensive to create. Better predicting expansion than recessions. May not be applicable in future periods. Requires scrutiny of output to verify validity.
Economic Indicators:
Advantages- avail from 3rd parties. Easy to understand. Adaptable. Effectiveness can be verified.
Disadvantages- leading indicators may give false signals. Economic relationships change through time.
Checklist Approach:
Advantages- simple. allows changes in model over time.
Disadvantages- subjective judgment. time intensitive to create. may not be able to model complex relationships.
 
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