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Colombian economic activity nowcasting: addressing nonlinearities and high dimensionality through machine-learning

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  • Rincón Briceño, Juan José

    (Universidad de los Andes)

Abstract

Economic decisions are made with high uncertainty about the current and recent past economic activity, due to the limited and imperfect available information. Therefore the following question arises: how can the accuracy of Colombian economic activity nowcasting be enhanced compared to traditional forecasting methods? This paper demonstrates: (a) using a risk-averse customized loss function that accounts for the agent disutility and penalizes directional discrepancies provides a useful alternative for assessing model performance by ensuring more accurate nowcasts, maximizing both precision and economic relevance. And (b) during periods of abrupt shocks and high volatility, such as the COVID-19 (2020–2021) and the post COVID-19 subsequent years (2022-2023), machine learning models outperform traditional nowcasting models

Suggested Citation

  • Rincón Briceño, Juan José, 2025. "Colombian economic activity nowcasting: addressing nonlinearities and high dimensionality through machine-learning," Documentos CEDE 21388, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:021388
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    More about this item

    Keywords

    Colombian economic activity; nowcast; forecast; Random forests; LSTM.;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • 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
    • 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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