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Nowcasting Norwegian GDP: The role of asset prices in a small open economy

This paper finds that asset prices on Oslo Stock Exchange is the single most important block of data to improve estimates of current quarter GDP in Norway. Other important blocks of data are labor market data and industrial production indicators. We use an approximate dynamic factor model that is able to handle new information as it is released, thus the marginal impact on mean square nowcasting error can be studied for a large number of variables. We use a panel of 148 non-synchronous variables covering a broad spectrum of the Norwegian economy. The strong impact from financial data is due to an ability of the market clearing process to impart information about the real activity in Norway in a timely manner.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2007/WP-20079/
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Paper provided by Norges Bank in its series Working Paper with number 2007/09.

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Length: 28 pages
Date of creation: 11 Jan 2008
Date of revision:
Handle: RePEc:bno:worpap:2007_09
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Web page: http://www.norges-bank.no/
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  5. Boivin, Jean & Ng, Serena, 2005. "Understanding and Comparing Factor-Based Forecasts," MPRA Paper 836, University Library of Munich, Germany.
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  9. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," CEPR Discussion Papers 3844, C.E.P.R. Discussion Papers.
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    • Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2005. "Monetary Policy in Real Time," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 161-224 National Bureau of Economic Research, Inc.
  11. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
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  16. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
  17. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  18. Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
  19. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  20. Angelini, Elena & Camba-Méndez, Gonzalo & Giannone, Domenico & Rünstler, Gerhard & Reichlin, Lucrezia, 2008. "Short-term forecasts of euro area GDP growth," Working Paper Series 0949, European Central Bank.
  21. Ekaterini Panopoulou, 2006. "The predictive content of financial variables: Evidence from the euro area," The Institute for International Integration Studies Discussion Paper Series iiisdp178, IIIS.
  22. Marc Hallin & Mario Forni & Marco Lippi & Lucrezia Reichlin, 2003. "Do financial variables help forecasting inflation and real activity in the Euro area ?," ULB Institutional Repository 2013/2123, ULB -- Universite Libre de Bruxelles.
  23. Domenico Giannone & Lucrezia Reichlin & David Small, 2005. "Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases," Finance and Economics Discussion Series 2005-42, Board of Governors of the Federal Reserve System (U.S.).
  24. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
  25. Ralitsa Petkova, 2006. "Do the Fama-French Factors Proxy for Innovations in Predictive Variables?," Journal of Finance, American Finance Association, vol. 61(2), pages 581-612, 04.
  26. Gary Koop & Simon Potter, 2004. "Forecasting in dynamic factor models using Bayesian model averaging," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 550-565, December.
  27. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  28. Jean Boivin & Serena Ng, 2003. "Are More Data Always Better for Factor Analysis?," NBER Working Papers 9829, National Bureau of Economic Research, Inc.
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