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Bottom-up or direct? Forecasting German GDP in a data-rich environment

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  • Katja Heinisch

    () (IWH Halle)

  • Rolf Scheufele

    () (Swiss National Bank (SNB))

Abstract

In this paper, we investigate whether there are benefits in disaggregating GDP into its components when nowcasting GDP. To answer this question, we conduct a realistic out-of-sample experiment that deals with the most prominent problems in short-term forecasting: mixed frequencies, ragged-edge data, asynchronous data releases and a large set of potential information. We compare a direct leading indicator-based GDP forecast with two bottom-up procedures—that is, forecasting GDP components from the production side or from the demand side. Generally, we find that the direct forecast performs relatively well. Among the disaggregated procedures, the production side seems to be better suited than the demand side to form a disaggregated GDP nowcast.

Suggested Citation

  • Katja Heinisch & Rolf Scheufele, 2018. "Bottom-up or direct? Forecasting German GDP in a data-rich environment," Empirical Economics, Springer, vol. 54(2), pages 705-745, March.
  • Handle: RePEc:spr:empeco:v:54:y:2018:i:2:d:10.1007_s00181-016-1218-x
    DOI: 10.1007/s00181-016-1218-x
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    More about this item

    Keywords

    Contemporaneous aggregation; Nowcasting; Leading indicators; MIDAS; Forecast combination; Dynamic factor models; Forecast evaluation;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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