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A Nowcasting Model for Canada: Do U.S. Variables Matter?

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  • Daniela Bragoli
  • Michele Modugno

Abstract

We propose a dynamic factor model for nowcasting the growth rate of quarterly real{{p}}Canadian gross domestic product. We show that the proposed model produces more accurate nowcasts than those produced by institutional forecasters, like the Bank of Canada, the The Organisation for Economic Co-operation and Development (OECD), and the survey collected by Bloomberg, which reflects the median forecast of market participants. We show that including U.S. data in a nowcasting model for Canada dramatically improves its predictive accuracy, mainly because of the absence of timely production data for Canada. Moreover, Statistics Canada produces a monthly real GDP measure along with the quarterly one, and we show how to modify the state space representation of our model to properly link the monthly GDP with its quarterly counterpart.

Suggested Citation

  • Daniela Bragoli & Michele Modugno, 2016. "A Nowcasting Model for Canada: Do U.S. Variables Matter?," Finance and Economics Discussion Series 2016-036, Board of Governors of the Federal Reserve System (US).
  • Handle: RePEc:fip:fedgfe:2016-36
    DOI: 10.17016/FEDS.2016.036
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    File URL: http://www.federalreserve.gov/econresdata/feds/2016/files/2016036pap.pdf
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    References listed on IDEAS

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    Cited by:

    1. Libero Monteforte & Valentina Raponi, 2018. "Short term forecasts of economic activity: are fortnightly factors useful?," Temi di discussione (Economic working papers) 1177, Bank of Italy, Economic Research and International Relations Area.
    2. Nikoleta Anesti & Ana Beatriz Galvao & Silvia Miranda-Agrippino, 2018. "Uncertain Kingdom: Nowcasting GDP and its Revisions," Discussion Papers 1824, Centre for Macroeconomics (CFM).
    3. Tony Chernis & Calista Cheung & Gabriella Velasco, 2017. "A Three-Frequency Dynamic Factor Model for Nowcasting Canadian Provincial GDP Growth," Discussion Papers 17-8, Bank of Canada.
    4. repec:spr:empeco:v:53:y:2017:i:1:d:10.1007_s00181-017-1254-1 is not listed on IDEAS
    5. Tony Chernis & Rodrigo Sekkel, 2018. "Nowcasting Canadian Economic Activity in an Uncertain Environment," Discussion Papers 18-9, Bank of Canada.
    6. repec:spr:jbuscr:v:14:y:2018:i:1:d:10.1007_s41549-017-0022-9 is not listed on IDEAS
    7. repec:eee:ecmode:v:69:y:2018:i:c:p:160-168 is not listed on IDEAS
    8. Tony Chernis & Rodrigo Sekkel, 2017. "A dynamic factor model for nowcasting Canadian GDP growth," Empirical Economics, Springer, vol. 53(1), pages 217-234, August.

    More about this item

    Keywords

    Nowcasting ; Updating ; Dynamic Factor Model;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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