However, in these approaches, the construction of index structure and the application of the processing functions are in high complexity.
While many methods exist for the construction of indexes, this method estimates the polychoric and polyserial correlations amongst the included variables and then performs principal component analysis on the resulting correlation matrix.
The two main problems are the construction of appropriate indices for measurement (the index problem), and the specification of time frames.
Despite the popular use of assets, there are concerns about various issues such as the choice of indicators, the weight of individual indicators, the treatment of missing values and the choice of aggregation of indicators in the construction of composite indices [42,43].
The statistical techniques applied in the construction of these indices may also be used to construct other indices in different geographical areas, taking into account the specificities for each area.
Second, the inclusion of the mixture of normals can be applied to other series and be used in the construction of composite indices of the economy or leading indicators.
For the construction of these indices, see Conway and Nicoletti (2006).
A list of all countries considered in the construction of the indices can be found in the Appendix.
Table 2 further shows how these data have been used by other institutions in the construction of their indices.
Factor analyses were applied in order to select the relevant parameters to be included in the construction of both indices.
