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Nowcasting GDP through the lens of economic states

Author

Listed:
  • Kris Boud

    (Department of Economics, Universiteit Gent, Belgium, Faculty of Social Sciences and Solvay Business School, Vrije Universiteit Brussel, Belgium, School of Business and Economics, Vrije Universiteit Amsterdam, The Netherlands)

  • Arno De Block

    (Faculty of Social Sciences and Solvay Business School, Vrije Universiteit Brussel)

  • Geert Langenus

    (Economics and Research Department, National Bank of Belgium)

  • Peter Reusens

    (Economics and Research Department, National Bank of Belgium)

Abstract

Common sense tells that historical data are more informative for the estimation of today’s nowcasting models when observed in a similar economic state as today. We operationalise this intuition by proposing a state-based weighted estimation procedure of GDP nowcasting models, in which observations are weighted based on the similarity with the current economic state. For this end, we also construct new state variables for measuring the similarity of economic time periods using news data, in addition to traditional variables. We find that the state-based weighting of observations leads to economically significant nowcasting gains for predicting GDP growth in Belgium as compared to traditional unweighted approaches.

Suggested Citation

  • Kris Boud & Arno De Block & Geert Langenus & Peter Reusens, 2023. "Nowcasting GDP through the lens of economic states," Working Paper Research 445, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202312-445
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    File URL: https://www.nbb.be/fr/articles/nowcasting-gdp-through-lens-economic-states
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    More about this item

    Keywords

    GDP growth; Media news; Nowcasting; Sentometrics; State variables;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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