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The Euro-Sting revisited: PMI versus ESI to obtain euro area GDP forecasts

Author

Listed:
  • Maximo Camacho
  • Agustin Garcia-Serrador

Abstract

This paper uses an extension of the Euro-Sting single-index dynamic factor model to construct short-term forecasts of quarterly GDP growth for the euro area, as also including financial variables as leading indicators. From a simulated real-time exercise, the model is used to investigate the forecasting accuracy across the different phases of the business cycle. In addition, the model is used to evaluate the relative forecasting ability of the two most watched business cycle surveys for the eurozone, the PMI and the ESI. We show that the latter produces more accurate GDP forecasts than the former. Finally, the proposed model is also characterized by its great ability to capture the European business cycle, as well as the probabilities of expansion and/or contraction periods.

Suggested Citation

  • Maximo Camacho & Agustin Garcia-Serrador, 2011. "The Euro-Sting revisited: PMI versus ESI to obtain euro area GDP forecasts," Working Papers 1120, BBVA Bank, Economic Research Department.
    • Handle: RePEc:bbv:wpaper:1120
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    References listed on IDEAS

    as
    1. Angel De la Fuente & Jose Emilio Bosca, 2011. "Gasto educativo por regiones y niveles en 2005," Working Papers 1119, BBVA Bank, Economic Research Department.
    2. Javier Alonso & David Tuesta & Jasmina Bjeletic & Carlos Herrera & Soledad Hormazabal & Ivonne Ordonez & Carolina Romero, 2009. "Un balance de la inversion de los fondos de pensiones en infraestructura: la experiencia en Latinoamerica," Working Papers 0920, BBVA Bank, Economic Research Department.
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    More about this item

    Keywords

    Real-time forecasting; dynamic factor model; eurozone GDP; business cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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