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Forecasting US economic growth in downturns using cross-country data

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  • Lyu, Yifei
  • Nie, Jun
  • Yang, Shu-Kuei X.

Abstract

The Covid-19 pandemic has created tremendous downward pressure on economic activity and revived interest in forecasting economic growth during severe downturns. However, most dynamic factor models used to forecast GDP growth include only domestic data. We construct a large data set of 77 countries representing over 90 percent of global GDP and show that including cross-country data helps produce more accurate forecasts of US GDP growth during economic downturns, but is less helpful in normal times. We provide explanations why this is the case.

Suggested Citation

  • Lyu, Yifei & Nie, Jun & Yang, Shu-Kuei X., 2021. "Forecasting US economic growth in downturns using cross-country data," Economics Letters, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304286
    DOI: 10.1016/j.econlet.2020.109668
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    More about this item

    Keywords

    Forecasting; Dynamic factor model; GDP growth; Cross-country data; Global financial crisis; Covid-19;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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