Nowcasting Mexican GDP using ARIMA error modelling: Electronic payments as complementary indicators of economic activity

Many economies have been leveraging real-time electronic payment systems to drive financial innovation and inclusion. This paper assesses whether data from Sistema De Pagos Electronicos Interbancarios (SPEI), an interbank electronic funds transfer system owned and operated by Banco de Mexico, can improve the timeliness and accuracy of Mexico’s gross domestic product (GDP) forecasts by acting as a complementary indicator of economic activity. In addition to being almost immediately available to the Central Bank, SPEI data is extremely comprehensive and about 168 times larger than credit and debit card transactions. The paper presents a cointegrated forecasting model using SPEI as the sole predictor of GDP. In the next stage, they build an auto regressive integrated moving average (ARIMA) model using the residuals of the cointegrated model. Compared to much more sophisticated, data-intensive models, the paper shows that using a complementary indicator like SPEI can be a parsimonious forecasting alternative, especially during highly volatile periods when it can mitigate information gaps. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/ business/.