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Real-Time Measurement of Business Conditions

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Author Info
Chiara Scotti () (International Finance Federal Reserve Board)
S.Boragan Aruoba (University of Maryland)
Francis X. Diebold (University of Pennsylvania)
University of Maryland

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Abstract

We construct a state space model for measuring real economic activity in real time (e.g., minute by minute) using a variety of stock and flow data, observed at mixed frequencies. Our data set comprises macroeconomic and financial variables: GDP, IP, unemployment, stock and bond market data, and interest rates, among others. The main difficulties in defining our state space relate to the use of mixed frequencies and the presence of both stock and flow data. Macroeconomic variables, as we know, have a lower frequency than financial variables and hence display a missing observation problem at the higher frequency. Moreover many macroeconomic variables are flow variables that need to be properly aggregated, with the problem that, for example, every quarter we observe what is consumed/produced/invested during the quarter without additional information about how much of it is consumed/produced/invested in a single month, day or minute of the quarter. We construct a state space model that is able to handle both difficulties. We clarify the issues associated with exact optimal filtering in such environments, and we propose a model that permits exact filtering. We apply our methods to the U.S. economy, conducting the estimation using parallel computing, and compare them to competitors

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Publisher Info
Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 387.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:387

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Find related papers by JEL classification:
C5 - Mathematical and Quantitative Methods - - Econometric Modeling
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Azar, Jose, 2009. "Electric Cars and Oil Prices," MPRA Paper 15538, University Library of Munich, Germany. [Downloadable!]
  2. Jon Faust & Jonathan H. Wright, 2007. "Comparing Greenbook and Reduced Form Forecasts using a Large Realtime Dataset," NBER Working Papers 13397, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Maximo Camacho & Gabriel Perez-Quiros, 2008. "Introducing the EURO-STING: Short Term INdicator of Euro Area Growth," Banco de España Working Papers 0807, Banco de España. [Downloadable!]
    Other versions:
  4. Chiara Scotti, 2006. "A bivariate model of Fed and ECB main policy rates," International Finance Discussion Papers 875, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Richard G. Anderson & Charles S. Gascon, 2009. "Estimating U.S. output growth with vintage data in a state-space framework," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 349-370. [Downloadable!]
  6. John W. Galbraith & Greg Tkacz, 2007. "Electronic Transactions as High-Frequency Indicators of Economic Activity," Working Papers 07-58, Bank of Canada. [Downloadable!]
    Other versions:
  7. Proietti, Tommaso, 2008. "Estimation of Common Factors under Cross-Sectional and Temporal Aggregation Constraints: Nowcasting Monthly GDP and its Main Components," MPRA Paper 6860, University Library of Munich, Germany. [Downloadable!]
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