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Real-time forecasting US GDP from small-scale factor models

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  • Maximo Camacho
  • Jaime Martíinez-Martin

Abstract

This paper proposes two refinements to the single-index dynamic factor model developed by Aruoba and Diebold (AD, 2010) to monitor US economic activity in real time. First, we adapt the model to include survey data and financial indicators. Second, we examine the predictive performance of the model when the goal is to forecast GDP growth. We find that our model is unequivocally the preferred alternative to compute backcasts. In nowcasting and forecasting, our model is able to forecast growth as well as AD and much better than several baseline alternatives. In addition, we find that our model could be used to predict more accurately the US business cycles.

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Bibliographic Info

Paper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 1210.

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Length: 15 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:bbv:wpaper:1210

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Keywords: real-time forecasting; business cycles; US GDP;

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References

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  1. Giannone, Domenico & Reichlin, Lucrezia & Small, David H., 2006. "Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases," Working Paper Series, European Central Bank 0633, European Central Bank.
  2. S. Boragan Aruoba & Francis X. Diebold & Chiara Scotti, 2007. "Real-time measurement of business conditions," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 901, Board of Governors of the Federal Reserve System (U.S.).
  3. Stark, Tom & Croushore, Dean, 2002. "Reply to the comments on 'Forecasting with a real-time data set for macroeconomists'," Journal of Macroeconomics, Elsevier, Elsevier, vol. 24(4), pages 563-567, December.
  4. Camacho, Maximo & Pérez-Quirós, Gabriel & Poncela, Pilar, 2012. "Extracting nonlinear signals from several economic indicators," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8865, C.E.P.R. Discussion Papers.
  5. S. Boragan Aruoba & Francis X. Diebold, 2010. "Real-Time Macroeconomic Monitoring: Real Activity, Inflation, and Interactions," PIER Working Paper Archive 10-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  6. Tom Stark and Dean Croushore, 2001. "Forecasting with a Real-Time Data Set for Macroeconomists," Computing in Economics and Finance 2001, Society for Computational Economics 258, Society for Computational Economics.
  7. Máximo Camacho & Rafael Doménech, 2012. "MICA-BBVA: a factor model of economic and financial indicators for short-term GDP forecasting," SERIEs, Spanish Economic Association, vol. 3(4), pages 475-497, December.
  8. Roberto S. Mariano & Yasutomo Murasawa, 2003. "A new coincident index of business cycles based on monthly and quarterly series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(4), pages 427-443.
  9. Angel De la Fuente & Jose Emilio Bosca, 2011. "Gasto educativo por regiones y niveles en 2005," Working Papers, BBVA Bank, Economic Research Department 1119, BBVA Bank, Economic Research Department.
  10. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 134-44, January.
  11. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
  12. Maximo Camacho & Gabriel Perez-Quiros, 2008. "Introducing the EURO-STING: Short Term INdicator of Euro Area Growth," Banco de Espa�a Working Papers 0807, Banco de Espa�a.
  13. 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, BBVA Bank, Economic Research Department 0920, BBVA Bank, Economic Research Department.
  14. Jean Boivin & Serena Ng, 2003. "Are More Data Always Better for Factor Analysis?," NBER Working Papers 9829, National Bureau of Economic Research, Inc.
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Cited by:
  1. William Barnett & Marcelle Chauvetz & Danilo Leiva-Leonx, . "Real-Time Nowcasting Nominal GDP Under Structural Break," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201313, University of Kansas, Department of Economics.
  2. Marcos Dal Bianco & Jaime Martinez-Martín & Maximo Camacho, 2013. "Short-Run Forecasting of Argentine GDP Growth," Working Papers, BBVA Bank, Economic Research Department 1314, BBVA Bank, Economic Research Department.

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