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Nowcasting GDP - A Scalable Approach Using DFM, Machine Learning and Novel Data, Applied to European Economies

Author

Listed:
  • Mr. Jean-Francois Dauphin
  • Mr. Kamil Dybczak
  • Morgan Maneely
  • Marzie Taheri Sanjani
  • Mrs. Nujin Suphaphiphat
  • Yifei Wang
  • Hanqi Zhang

Abstract

This paper describes recent work to strengthen nowcasting capacity at the IMF’s European department. It motivates and compiles datasets of standard and nontraditional variables, such as Google search and air quality. It applies standard dynamic factor models (DFMs) and several machine learning (ML) algorithms to nowcast GDP growth across a heterogenous group of European economies during normal and crisis times. Most of our methods significantly outperform the AR(1) benchmark model. Our DFMs tend to perform better during normal times while many of the ML methods we used performed strongly at identifying turning points. Our approach is easily applicable to other countries, subject to data availability.

Suggested Citation

  • Mr. Jean-Francois Dauphin & Mr. Kamil Dybczak & Morgan Maneely & Marzie Taheri Sanjani & Mrs. Nujin Suphaphiphat & Yifei Wang & Hanqi Zhang, 2022. "Nowcasting GDP - A Scalable Approach Using DFM, Machine Learning and Novel Data, Applied to European Economies," IMF Working Papers 2022/052, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/052
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=513703
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    Citations

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    Cited by:

    1. Tesi Aliaj & Milos Ciganovic & Massimiliano Tancioni, 2023. "Nowcasting inflation with Lasso‐regularized vector autoregressions and mixed frequency data," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 464-480, April.
    2. Priscila Espinosa & Jose M. Pavía, 2023. "Automation in Regional Economic Synthetic Index Construction with Uncertainty Measurement," Forecasting, MDPI, vol. 5(2), pages 1-19, April.
    3. Juan Tenorio & Wilder Perez, 2024. "Monthly GDP nowcasting with Machine Learning and Unstructured Data," Papers 2402.04165, arXiv.org.

    More about this item

    Keywords

    Nowcasting; Factor Model; Machine Learning; Large Data Sets; machine learning algorithm; novel data; approach Using DFM; support vector Machine; data availability; Machine learning; COVID-19; Business cycles; Factor models; Global; Caribbean; Europe;
    All these keywords.

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