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The PRISME model: can disaggregation on the production side help to forecast GDP?

Author

Listed:
  • C. Thubin
  • T. Ferrière
  • E. Monnet
  • M. Marx
  • V. Oung

Abstract

Although a forecasting model has very good statistical properties and the mean of the residuals equals zero, it can produce systematic errors during a short period. In the case of regular publications, forecasters want to prevent such a persistence of errors over several periods. For this reason, a safeguard model can be used to inform the forecaster when there is a risk that the standard model (i.e. the best specified model on average) leads to persistent errors over several months or quarters. This paper explains why and how such a safeguard model has been built in order to improve the forecasts of French GDP at the current quarter horizon (nowcasts), which are officially published by the French central bank. The official benchmark model for GDP nowcasts is an aggregated model that relies exclusively on survey in the manufacturing industry. In the long run, this model still has the best performances. On the contrary, the safeguard model is a disaggregated model which features equations for the valued added of 6 sectors. From this example, we provide general remarks on the advantages of disaggregation as well as how such safeguard models can be used in practice.

Suggested Citation

  • C. Thubin & T. Ferrière & E. Monnet & M. Marx & V. Oung, 2016. "The PRISME model: can disaggregation on the production side help to forecast GDP?," Working papers 596, Banque de France.
    • Handle: RePEc:bfr:banfra:596
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    References listed on IDEAS

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    1. E. Monnet & C. Thubin, 2017. "Construction crises and business cycle: consequences for GDP forecasts," Rue de la Banque, Banque de France, issue 39, february..

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    More about this item

    Keywords

    GDP nowcasting; Aggregation; Mixed-frequency data.;
    All these keywords.

    JEL classification:

    • 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
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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