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Nowcasting the Global Economy

Author

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  • James Rossiter

Abstract

Forecasts of global economic activity and inflation are important inputs when conducting monetary policy in small open economies such as Canada. As part of the Bank of Canada's broad agenda to augment its short-term forecasting tools, the author constructs simple mixed-frequency forecasting equations for quarterly global output, imports, and inflation using the monthly global Purchasing Managers Index (PMI). When compared against two benchmark models, the results show that the PMIs are useful for forecasting developments in the global economy. As the forecasts are updated throughout the quarter with the monthly release of the PMI, forecasting performance generally improves. An analysis of the forecasts over the period of the Great Recession (in particular, 2008Q4 to 2009Q2) shows that, while models that include the "soft" PMI indicators did not fully capture the sharp deterioration in the global economy, they nevertheless improved the forecasts relative to the benchmark models. This finding highlights the usefulness of such indicators for short-term forecasting.

Suggested Citation

  • James Rossiter, 2010. "Nowcasting the Global Economy," Discussion Papers 10-12, Bank of Canada.
  • Handle: RePEc:bca:bocadp:10-12
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    File URL: http://www.bankofcanada.ca/en/res/dp/2010/dp10-12.pdf
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    Citations

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    Cited by:

    1. Maxime Leboeuf & Louis Morel, 2014. "Forecasting Short-Term Real GDP Growth in the Euro Area and Japan Using Unrestricted MIDAS Regressions," Discussion Papers 14-3, Bank of Canada.
    2. repec:ecb:ecbwps:20111428 is not listed on IDEAS
    3. Ravazzolo, Francesco & Vespignani, Joaquin, 2017. "World steel production: A new monthly indicator of global real economic activity," Working Papers 2017-08, University of Tasmania, Tasmanian School of Business and Economics.
    4. Claudia Godbout & Marco J. Lombardi, 2012. "Short-Term Forecasting of the Japanese Economy Using Factor Models," Staff Working Papers 12-7, Bank of Canada.
    5. Lombardi, Marco J. & Maier, Philipp, 2011. "Forecasting economic growth in the euro area during the Great Moderation and the Great Recession," Working Paper Series 1379, European Central Bank.
    6. Stratford, Kate, 2013. "Nowcasting world GDP and trade using global indicators," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 233-242.
    7. Camacho, Maximo & Martinez-Martin, Jaime, 2015. "Monitoring the world business cycle," Economic Modelling, Elsevier, vol. 51(C), pages 617-625.
    8. Gabe de Bondt, 2012. "Nowcasting: Trust the Purchasing Managers’ Index or wait for the flash GDP estimate?," EcoMod2012 3896, EcoMod.
    9. L. Ferrara & C. Marsilli, 2014. "Nowcasting global economic growth: A factor-augmented mixed-frequency approach," Working papers 515, Banque de France.

    More about this item

    Keywords

    Economic models; International topics;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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