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Real-time forecasting US GDP from small-scale factor models

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  • Maximo Camacho
  • Jaime Martinez-Martin

Abstract

We show that the single-index dynamic factor model developed by Aruoba and Diebold (Am Econ Rev, 100:20–24, 2010 ) to construct an index of the US business cycle conditions is also very useful to forecast US GDP growth in real time. In addition, we adapt the model to include survey data and financial indicators. We find that our extension is unequivocally the preferred alternative to compute backcasts. In nowcasting and forecasting, our model is able to forecast growth as well as AD and better than several baseline alternatives. Finally, we show that our extension could also be used to infer the US business cycles very precisely. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Maximo Camacho & Jaime Martinez-Martin, 2014. "Real-time forecasting US GDP from small-scale factor models," Empirical Economics, Springer, vol. 47(1), pages 347-364, August.
  • Handle: RePEc:spr:empeco:v:47:y:2014:i:1:p:347-364
    DOI: 10.1007/s00181-013-0731-4
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    15. Maximo Camacho & Gabriel Perez‐Quiros & Pilar Poncela, 2015. "Extracting Nonlinear Signals from Several Economic Indicators," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(7), pages 1073-1089, November.
    16. Javier Alonso & David Tuesta & Jasmina Bjeletic & Carlos Herrera & Soledad Hormazabal & Ivonne Ordonez & Carolina Romero, 2009. "Un balance de la inversion de los fondos de pensiones en infraestructura: la experiencia en Latinoamerica," Working Papers 0920, BBVA Bank, Economic Research Department.
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    Cited by:

    1. Martínez-Martín, Jaime & Rusticelli, Elena, 2021. "Keeping track of global trade in real time," International Journal of Forecasting, Elsevier, vol. 37(1), pages 224-236.
    2. Helena Rodríguez, 2014. "Un indicador de la evolución del PIB uruguayo en tiempo real," Documentos de trabajo 2014009, Banco Central del Uruguay.
    3. Nyoni, Thabani, 2019. "Is the United States of America (USA) really being made great again? witty insights from the Box-Jenkins ARIMA approach," MPRA Paper 91353, University Library of Munich, Germany.
    4. Camacho, Maximo & Martinez-Martin, Jaime, 2015. "Monitoring the world business cycle," Economic Modelling, Elsevier, vol. 51(C), pages 617-625.
    5. William A. Barnett & Marcelle Chauvet & Danilo Leiva-Leon, 2014. "Real-Time Nowcasting of Nominal GDP Under Structural Breaks," Staff Working Papers 14-39, Bank of Canada.
    6. Alain Galli & Christian Hepenstrick & Rolf Scheufele, 2019. "Mixed-Frequency Models for Tracking Short-Term Economic Developments in Switzerland," International Journal of Central Banking, International Journal of Central Banking, vol. 15(2), pages 151-178, June.
    7. Eric W. K. See-To & Eric W. T. Ngai, 2018. "Customer reviews for demand distribution and sales nowcasting: a big data approach," Annals of Operations Research, Springer, vol. 270(1), pages 415-431, November.
    8. Barnett, William A. & Chauvet, Marcelle & Leiva-Leon, Danilo, 2016. "Real-time nowcasting of nominal GDP with structural breaks," Journal of Econometrics, Elsevier, vol. 191(2), pages 312-324.
    9. Maximo Camacho & Danilo Leiva-Leon & Gabriel Perez-Quiros, 2016. "Country Shocks, Monetary Policy Expectations and ECB Decisions. A Dynamic Non-linear Approach," Advances in Econometrics, in: Eric Hillebrand & Siem Jan Koopman (ed.), Dynamic Factor Models, volume 35, pages 283-316, Emerald Publishing Ltd.
    10. Barnett, William A. & Chauvet, Marcelle & Leiva-Leon, Danilo, 2014. "Real-Time Nowcasting Nominal GDP Under Structural Break," MPRA Paper 53699, University Library of Munich, Germany.
    11. Marcos Dal Bianco & Jaime Martinez-Martín & Maximo Camacho, 2013. "Short-Run Forecasting of Argentine GDP Growth," Working Papers 1314, BBVA Bank, Economic Research Department.

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    More about this item

    Keywords

    Real-time forecasting; Economic indicators; Business cycles; E32; C22; E27;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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