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Nowcasting Italian GDP growth: a Factor MIDAS approach

Author

Listed:
  • Donato Ceci

    (Bank of Italy)

  • Orest Prifti

    (Università degli Studi di Roma-Tor Vergata)

  • Andrea Silvestrini

    (Bank of Italy)

Abstract

This paper examines the role of weekly financial data in nowcasting the quarterly growth rate of Italian real GDP, with a specific focus on the impact of the COVID-19 pandemic. It combines factor models and MIxed DAta Sampling (MIDAS) regression models to set up Factor MIDAS specifications, which leverage a large set of higher-frequency financial variables to exploit the information flow within the quarter. The analysis is performed using a comprehensive dataset that includes monthly macroeconomic data and weekly financial data. The predictive accuracy is assessed by conducting a pseudo out-of-sample nowcast exercise and evaluating the performance of the models with and without the inclusion of factors derived from financial indicators. Financial variables improve the nowcast of real GDP growth in Italy, particularly in the first month of the quarter, when few macroeconomic data are available. The models incorporating financial variables consistently exhibit high nowcasting accuracy throughout the quarter.

Suggested Citation

  • Donato Ceci & Orest Prifti & Andrea Silvestrini, 2024. "Nowcasting Italian GDP growth: a Factor MIDAS approach," Temi di discussione (Economic working papers) 1446, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1446_24
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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2024/2024-1446/en_tema_1446.pdf
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    More about this item

    Keywords

    nowcasting; mixed frequency; factor models; variable selection; financial markets; factor MIDAS;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • 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

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