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Forecasting economic activity with targeted predictors

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  • Bulligan, Guido
  • Marcellino, Massimiliano
  • Venditti, Fabrizio

Abstract

In this paper we explore the forecasting performances of methods based on a pre-selection of monthly indicators from large panels of time series. After a preliminary data reduction step based on different shrinkage techniques, we compare the accuracy of principal components forecasts with that of parsimonious regressions in which further shrinkage is achieved using the General-To-Specific approach. In an empirical application, we show that the two competing models produce accurate current-quarter forecasts of Italian GDP and of its main demand components, outperforming naïve forecasts and comparing favorably with factor models based on all available information. A robustness check conducted on the GDP growth of the euro area and of its major members confirms these results.

Suggested Citation

  • Bulligan, Guido & Marcellino, Massimiliano & Venditti, Fabrizio, 2015. "Forecasting economic activity with targeted predictors," International Journal of Forecasting, Elsevier, vol. 31(1), pages 188-206.
  • Handle: RePEc:eee:intfor:v:31:y:2015:i:1:p:188-206
    DOI: 10.1016/j.ijforecast.2014.03.004
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    Cited by:

    1. Ghysels, Eric & Ozkan, Nazire, 2015. "Real-time forecasting of the US federal government budget: A simple mixed frequency data regression approach," International Journal of Forecasting, Elsevier, vol. 31(4), pages 1009-1020.
    2. Valentina Aprigliano & Claudia Foroni & Massimiliano Marcellino & Gianluigi Mazzi & Fabrizio Venditti, 2017. "A daily indicator of economic growth for the euro area," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 7(1/2), pages 43-63.
    3. repec:eee:ejores:v:264:y:2018:i:2:p:558-569 is not listed on IDEAS
    4. Schumacher, Christian, 2016. "A comparison of MIDAS and bridge equations," International Journal of Forecasting, Elsevier, vol. 32(2), pages 257-270.
    5. Mikosch, Heiner & Solanko, Laura, 2017. "Should one follow movements in the oil price or in money supply? Forecasting quarterly GDP growth in Russia with higher-frequency indicators," BOFIT Discussion Papers 19/2017, Bank of Finland, Institute for Economies in Transition.

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