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Nowcasting Mexican GDP using Factor Models and Bridge Equations

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  • Gálvez-Soriano Oscar de Jesús

Abstract

This paper evaluates five Nowcasting models that forecast Mexico's quarterly GDP: a Dynamic Factor Model (MFD), two Bridge Equation Models (BE) and two Principal Components Models (PCA). The results indicate that the average of the BE forecasts is statistically better than the rest of the models under consideration, according to the Diebold-Mariano (1995) accuracy test. In addition, using real-time information, the BE average is found to be more accurate than the median of the forecasts provided by the analysts surveyed by Bloomberg and the median of the experts who answer Banco de México's Survey of Professional Forecasters.

Suggested Citation

  • Gálvez-Soriano Oscar de Jesús, 2018. "Nowcasting Mexican GDP using Factor Models and Bridge Equations," Working Papers 2018-06, Banco de México.
    • Handle: RePEc:bdm:wpaper:2018-06
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    References listed on IDEAS

    as
    1. Elena Angelini & Gonzalo Camba‐Mendez & Domenico Giannone & Lucrezia Reichlin & Gerhard Rünstler, 2011. "Short‐term forecasts of euro area GDP growth," Econometrics Journal, Royal Economic Society, vol. 14(1), pages 25-44, February.
    2. Máximo Camacho & Rafael Doménech, 2012. "MICA-BBVA: a factor model of economic and financial indicators for short-term GDP forecasting," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 3(4), pages 475-497, December.
    3. Bańbura, Marta & Giannone, Domenico & Modugno, Michele & Reichlin, Lucrezia, 2013. "Now-Casting and the Real-Time Data Flow," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 195-237, Elsevier.
    4. Caruso, Alberto, 2018. "Nowcasting with the help of foreign indicators: The case of Mexico," Economic Modelling, Elsevier, vol. 69(C), pages 160-168.
    5. Baffigi, Alberto & Golinelli, Roberto & Parigi, Giuseppe, 2004. "Bridge models to forecast the euro area GDP," International Journal of Forecasting, Elsevier, vol. 20(3), pages 447-460.
    6. 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.
    7. Marta Bańbura & Michele Modugno, 2014. "Maximum Likelihood Estimation Of Factor Models On Datasets With Arbitrary Pattern Of Missing Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(1), pages 133-160, January.
    8. Pérez-Quirós, Gabriel & Camacho, Máximo & Alvarez, Rocio, 2012. "Finite sample performance of small versus large scale dynamic factor models," CEPR Discussion Papers 8867, C.E.P.R. Discussion Papers.
    9. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Nowcasting; Dynamic Factor Model; Bridge Equations; Principal Component Analysis; Quarterly GDP; Diebold-Mariano test;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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