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Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases

  • Domenico Giannone
  • Lucrezia Reichlin
  • David Small

This paper formalizes the process of updating the nowcast and forecast on output and inflation as new releases of data become available. The marginal contribution of a particular release for the value of the signal and its precision is evaluated by computing "news" on the basis of an evolving conditioning information set. The marginal contribution is then split into what is due to timeliness of information and what is due to economic content. We find that the Federal Reserve Bank of Philadelphia surveys have a large marginal impact on the nowcast of both inflation variables and real variables, and this effect is larger than that of the Employment Report. When we control for timeliness of the releases, the effect of hard data becomes sizeable. Prices and quantities affect the precision of the estimates of inflation, while GDP is affected only by real variables and interest rates.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2005-42.

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Date of creation: 2005
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Handle: RePEc:fip:fedgfe:2005-42
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  1. 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.
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  7. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  8. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2005. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 830-840, September.
  9. Athanasios Orphanides, 2002. "Monetary-Policy Rules and the Great Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 115-120, May.
  10. Catherine Doz & Lucrezia Reichlin, 2011. "A two-step estimator for large approximate dynamic factor models based on Kalman filtering," Post-Print hal-00844811, HAL.
  11. Forni, Mario & Giannone, Domenico & Lippi, Marco & Reichlin, Lucrezia, 2007. "Opening the black box: structural factor models with large cross-sections," Working Paper Series 0712, European Central Bank.
  12. Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2005. "Monetary Policy in Real Time," Working Papers 284, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • 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.
  13. Ben S. Bernanke & Jean Boivin, 2001. "Monetary Policy in a Data-Rich Environment," NBER Working Papers 8379, National Bureau of Economic Research, Inc.
  14. Mario Forni & Lucrezia Reichlin, 2001. "Federal policies and local economies: Europe and the U.S," ULB Institutional Repository 2013/10141, ULB -- Universite Libre de Bruxelles.
  15. Doz, Catherine & Giannone, Domenico & Reichlin, Lucrezia, 2011. "A two-step estimator for large approximate dynamic factor models based on Kalman filtering," Journal of Econometrics, Elsevier, vol. 164(1), pages 188-205, September.
  16. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  17. Antonello D’ Agostino & Domenico Giannone, 2012. "Comparing Alternative Predictors Based on Large‐Panel Factor Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(2), pages 306-326, 04.
  18. Dean Croushore & Tom Stark, 1999. "A real-time data set for macroeconomists," Working Papers 99-4, Federal Reserve Bank of Philadelphia.
  19. Doz, Catherine & Giannone, Domenico & Reichlin, Lucrezia, 2006. "A quasi maximum likelihood approach for large approximate dynamic factor models," Working Paper Series 0674, European Central Bank.
  20. Rünstler, Gerhard & Sédillot, Franck, 2003. "Short-term estimates of euro area real GDP by means of monthly data," Working Paper Series 0276, European Central Bank.
  21. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  22. D’Agostino, Antonello & Giannone, Domenico & Surico, Paolo, 2006. "(Un)Predictability and macroeconomic stability," Working Paper Series 0605, European Central Bank.
  23. Jean Boivin & Serena Ng, 2005. "Understanding and Comparing Factor-Based Forecasts," NBER Working Papers 11285, National Bureau of Economic Research, Inc.
  24. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, vol. 132(1), pages 169-194, May.
  25. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2003. "Macroeconomic forecasting in the Euro area: Country specific versus area-wide information," European Economic Review, Elsevier, vol. 47(1), pages 1-18, February.
  26. 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.
  27. Mario Forno & Marco Lippi & Lucrezia Reichlin & Filippo Altissimo & Antonio Bassanetti, 2003. "Eurocoin: A Real Time Coincident Indicator Of The Euro Area Business Cycle," Computing in Economics and Finance 2003 242, Society for Computational Economics.
  28. Catherine Doz & Lucrezia Reichlin, 2011. "A two-step estimator for large approximate dynamic factor models based on Kalman filtering," Post-Print peer-00844811, HAL.
  29. Kitchen, John & Monaco, Ralph, 2003. "Real-Time Forecasting in Practice: The U.S. Treasury Staff's Real-Time GDP Forecast System," MPRA Paper 21068, University Library of Munich, Germany, revised Oct 2003.
  30. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
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