IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Should macroeconomic forecasters use daily financial data and how?

Listed author(s):
  • Eric Ghysels

    (UNC)

  • Andros Kourtellos

    (University of Cyprus)

  • Elena Andreou

    (University of Cyprus)

We introduce easy to implement regression-based methods for predicting quarterly real economic activity that use daily financial data and rely on forecast combinations of Mixed Data Sampling (MIDAS) regressions. We also extract a novel small set of daily financial factors from a large panel of about one thousand daily financial assets. Our analysis is designed to elucidate the value of daily information and provide real-time forecast updates of the current (nowcasting) and future quarters of real GDP growth. Our findings show that while on average the predictive ability of all models worsens substantially following the financial crisis that started in 2007, the models we propose suffer relatively less losses than the traditional ones. Moreover, these predictive gains are primarily driven by the classes of government securities, equities, and especially corporate risk.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://economicdynamics.org/meetpapers/2012/paper_1196.pdf
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1196.

as
in new window

Length:
Date of creation: 2012
Handle: RePEc:red:sed012:1196
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Roberto S. Mariano & Yasutomo Murasawa, 2003. "A new coincident index of business cycles based on monthly and quarterly series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(4), pages 427-443.
  2. M Sensier & D van Dijk, 2003. "Testing for Volatility Changes in US Macroeconomic Time Series," Centre for Growth and Business Cycle Research Discussion Paper Series 36, Economics, The Univeristy of Manchester.
  3. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2008. "Nowcasting: The real-time informational content of macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 665-676, May.
  4. Giacomini, Raffaella & White, Halbert, 2003. "Tests of Conditional Predictive Ability," University of California at San Diego, Economics Working Paper Series qt5jk0j5jh, Department of Economics, UC San Diego.
  5. Charles Engel & Kenneth D. West, 2003. "Exchange rates and fundamentals," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  6. Rossi, Barbara & Giacomini, Raffaella, 2006. "Detecting and Predicting Forecast Breakdowns," Working Papers 06-01, Duke University, Department of Economics.
  7. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers 97-25, C.V. Starr Center for Applied Economics, New York University.
  8. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
  9. Christopher A. Sims, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," NBER Working Papers 0430, National Bureau of Economic Research, Inc.
  10. Hamilton, James Douglas & Kim, Dong Heon, 2000. "A Re-examination of the Predictability of Economic Activity Using the Yield Spread," University of California at San Diego, Economics Working Paper Series qt69v8p1m9, Department of Economics, UC San Diego.
  11. Peter A. Zadrozny, 1990. "Forecasting U.S. GNP at monthly intervals with an estimated bivariate time series model," Economic Review, Federal Reserve Bank of Atlanta, issue Nov, pages 2-15.
  12. Yu-chin Chen & Kenneth Rogoff & Barbara Rossi, 2010. "Can Exchange Rates Forecast Commodity Prices?," Working Papers 10-07, Duke University, Department of Economics.
  13. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
  14. Frank Schorfheide & Dongho Song, 2013. "Real-Time Forecasting with a Mixed-Frequency VAR," NBER Working Papers 19712, National Bureau of Economic Research, Inc.
  15. Guillaume Chevillon & David F. Hendry, 2004. "Non-Parametric Direct Multi-step Estimation for Forecasting Economic Processes," Economics Papers 2004-W12, Economics Group, Nuffield College, University of Oxford.
  16. Gilchrist, Simon & Yankov, Vladimir & Zakrajsek, Egon, 2009. "Credit market shocks and economic fluctuations: Evidence from corporate bond and stock markets," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 471-493, May.
  17. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
  18. Andrew Ang & Monika Piazzesi & Min Wei, 2003. "What does the yield curve tell us about GDP growth?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  19. Robert J. Barro, 1989. "The Stock Market and Investment," NBER Working Papers 2925, National Bureau of Economic Research, Inc.
  20. Catherine Doz & Domenico Giannone & Lucrezia Reichlin, 2011. "A two-step estimator for large approximate dynamic factor models based on Kalman filtering," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00638009, HAL.
  21. Jonathan H. Wright, 2003. "Bayesian Model Averaging and exchange rate forecasts," International Finance Discussion Papers 779, Board of Governors of the Federal Reserve System (U.S.).
  22. Andreou, Elena & Ghysels, Eric & Kourtellos, Andros, 2010. "Regression models with mixed sampling frequencies," Journal of Econometrics, Elsevier, vol. 158(2), pages 246-261, October.
  23. Tatevik Sekhposyan & Barbara Rossi, 2008. "Has modelsí forecasting performance for US output growth and inflation changed over time, and when?," Working Papers 09-02, Duke University, Department of Economics.
  24. Sydney C. Ludvigson & Serena Ng, 2005. "The Empirical Risk-Return Relation: A Factor Analysis Approach," NBER Working Papers 11477, National Bureau of Economic Research, Inc.
  25. Libero Monteforte & Gianluca Moretti, 2013. "Real‐Time Forecasts of Inflation: The Role of Financial Variables," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(1), pages 51-61, 01.
  26. Alper, C. Emre & Fendoglu, Salih & Saltoglu, Burak, 2008. "Forecasting Stock Market Volatilities Using MIDAS Regressions: An Application to the Emerging Markets," MPRA Paper 7460, University Library of Munich, Germany.
  27. Hansen, Bruce E., 2008. "Least-squares forecast averaging," Journal of Econometrics, Elsevier, vol. 146(2), pages 342-350, October.
  28. D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," Research Technical Papers 8/RT/09, Central Bank of Ireland.
  29. Michelle T. Armesto & Rubén Hernández-Murillo & Michael T. Owyang & Jeremy Piger, 2009. "Measuring the Information Content of the Beige Book: A Mixed Data Sampling Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 35-55, 02.
  30. Banbura, Marta & Rünstler, Gerhard, 2011. "A look into the factor model black box: Publication lags and the role of hard and soft data in forecasting GDP," International Journal of Forecasting, Elsevier, vol. 27(2), pages 333-346, April.
  31. S. Boragan Aruoba & Francis X. Diebold & Chiara Scotti, 2008. "Real-time measurement of business conditions," Working Papers 08-19, Federal Reserve Bank of Philadelphia.
  32. Kenneth D. West & Todd Clark, 2006. "Approximately Normal Tests for Equal Predictive Accuracy in Nested Models," NBER Technical Working Papers 0326, National Bureau of Economic Research, Inc.
  33. Clark, Todd E. & McCracken, Michael W., 2005. "The power of tests of predictive ability in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 124(1), pages 1-31, January.
  34. Thomas Urich & Paul Wachtel, 1984. "The Effects of Inflation and Money Supply Announcements on Interest Rates," NBER Working Papers 1313, National Bureau of Economic Research, Inc.
  35. Leon, Angel & Nave, Juan M. & Rubio, Gonzalo, 2007. "The relationship between risk and expected return in Europe," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 495-512, February.
  36. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
  37. Emanuel Moench & Serena Ng & Simon M. Potter, 2009. "Dynamic hierarchical factor models," Staff Reports 412, Federal Reserve Bank of New York.
  38. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers 11538, National Bureau of Economic Research, Inc.
  39. Urich, Thomas J & Wachtel, Paul, 1984. " The Effects of Inflation and Money Supply Announcements on Interest Rates," Journal of Finance, American Finance Association, vol. 39(4), pages 1177-1188, September.
  40. Eric Ghysels & Pedro Santa-Clara & Rossen Valkanov, 2004. "Predicting Volatility: Getting the Most out of Return Data Sampled at Different Frequencies," NBER Working Papers 10914, National Bureau of Economic Research, Inc.
  41. Faust, Jon & Wright, Jonathan H., 2009. "Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 468-479.
  42. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  43. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
  44. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
  45. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-259, April.
  46. Fama, Eugene F., 1990. "Term-structure forecasts of interest rates, inflation and real returns," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 59-76, January.
  47. Wasserfallen, Walter, 1989. "Macroeconomics news and the stock market: Evidence from Europe," Journal of Banking & Finance, Elsevier, vol. 13(4-5), pages 613-626, September.
  48. Schumacher, Christian & Breitung, Jörg, 2008. "Real-time forecasting of German GDP based on a large factor model with monthly and quarterly data," International Journal of Forecasting, Elsevier, vol. 24(3), pages 386-398.
  49. Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
  50. Harvey, Campbell R., 1988. "The real term structure and consumption growth," Journal of Financial Economics, Elsevier, vol. 22(2), pages 305-333, December.
  51. Kuzin, Vladimir N. & Marcellino, Massimiliano & Schumacher, Christian, 2009. "MIDAS versus mixed-frequency VAR: nowcasting GDP in the euro area," Discussion Paper Series 1: Economic Studies 2009,07, Deutsche Bundesbank, Research Centre.
  52. David Hendry & Michael P. Clements, 2001. "Pooling of Forecasts," Economics Papers 2002-W9, Economics Group, Nuffield College, University of Oxford.
  53. Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2010. "The TIPS Yield Curve and Inflation Compensation," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 70-92, January.
  54. Aiolfi, Marco & Timmermann, Allan, 2006. "Persistence in forecasting performance and conditional combination strategies," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 31-53.
  55. Avramov, Doron, 2002. "Stock return predictability and model uncertainty," Journal of Financial Economics, Elsevier, vol. 64(3), pages 423-458, June.
  56. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  57. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-492, June.
  58. Robert D. Laurent, 1988. "An interest rate-based indicator of monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 3-14.
  59. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  60. Stefan Mittnik & Peter A. Zadrozny, 2004. "Forecasting Quarterly German GDP at Monthly Intervals Using Monthly IFO Business Conditions Data," CESifo Working Paper Series 1203, CESifo Group Munich.
  61. Anthony Tay, 2007. "Financial Variables as Predictors of Real Output Growth," Working Papers 14-2007, Singapore Management University, School of Economics.
  62. Ghysels, Eric & Wright, Jonathan H., 2009. "Forecasting Professional Forecasters," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 504-516.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed012:1196. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.