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Exploiting the monthly data-flow in structural forecasting

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  • Domenico Giannone

    ()
    (Libera Università Internazionale degli Studi Sociali Guido Carli (LUISS)
    Centre for Economic Policy Research (CEPR))

  • Francesca Monti

    ()
    (Bank of England
    Centre for Macroeconomics (CFM))

  • Lucrezia Reichlin

    ()
    (London Business School (LBS)
    Centre for Economic Policy Research (CEPR))

Abstract

This paper shows how and when it is possible to obtain a mapping from a quarterly DSGE model to a monthly specification that maintains the same economic restrictions and has real coefficients. We use this technique to derive the monthly counterpart of the Gali et al (2011) model. We then augment it with auxiliary macro indicators which, because of their timeliness, can be used to obtain a now-cast of the structural model. We show empirical results for the quarterly growth rate of GDP, the monthly unemployment rate and the welfare relevant output gap defined in Gali, Smets and Wouters (2011). Results show that the augmented monthly model does best for now-casting.

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File URL: http://www.centreformacroeconomics.ac.uk/pdf/CFMDP2014-16-Paper.pdf
File Function: First version, 2014
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Bibliographic Info

Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1416.

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Length: 23 pages
Date of creation: Jun 2014
Date of revision:
Handle: RePEc:cfm:wpaper:1416

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Web page: http://www.centreformacroeconomics.ac.uk/
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Keywords: DSGEmodels; forecasting; temporal aggregation; mixed frequency data; large datasets;

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  1. Jaimovich, Nir & Rebelo, Sérgio, 2006. "Can News About the Future Drive the Business Cycle?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5877, C.E.P.R. Discussion Papers.
  2. Catherine Doz & Domenico Giannone & Lucrezia Reichlin, 2008. "A Quasi Maximum Likelihood Approach for Large Approximate Dynamic Factor Models," Working Papers ECARES, ULB -- Universite Libre de Bruxelles 2008_034, ULB -- Universite Libre de Bruxelles.
  3. Marianna Cervená & Martin Schneider, 2010. "Short-term forecasting GDP with a DSGE model augmented by monthly indicators," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 163, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
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