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New Eurocoin: Tracking Economic Growth in Real Time

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Author Info

  • Filippo Altissimo

    ()
    (Brevan Howard Asset Management)

  • Riccardo Cristadoro

    ()
    (Banca d'Italia)

  • Mario Forni

    ()
    (Università di Modena)

  • Marco Lippi

    ()
    (Università La Sapienza di Roma)

  • Giovanni Veronese

    ()
    (Banca d'Italia)

Abstract

This paper presents ideas and methods underlying the construction of an indicator that tracks the euro area GDP growth, but, unlike GDP growth, (i) is updated monthly and almost in real time; (ii) is free from hort-run dynamics. Removal of short-run dynamics from a time series, to isolate the mediumlong-run component, can be obtained by a band-pass filter. However, it is well known that band-pass filters, being two-sided, perform very poorly at the end of the sample. New Eurocoin is an estimator of the medium- long-run component of the GDP that only uses contemporaneous values of a large panel of macroeconomic time series, so that no end-of-sample deterioration occurs. Moreover, as our dataset is monthly, New Eurocoin can be updated each month and with a very short delay. Our method is based on generalized principal components that are designed to use leading variables in the dataset as proxies for future values of the GDP growth. As the medium- long-run component of the GDP is observable, although with delay, the performance of New Eurocoin at the end of the sample can be measured.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 631.

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Date of creation: Jun 2007
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Handle: RePEc:bdi:wptemi:td_631_07

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Keywords: coincident indicator; band-pass filter; large-dataset factor models; generalized principal components;

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References

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