The Role of Indicator Selection in Nowcasting Euro Area GDP in Pseudo Real Time

Quaderni - Working Paper DSE N° 919

59 Pages Posted: 15 Jan 2014

See all articles by Alessandro Girardi

Alessandro Girardi

National Institute of Statistics (ISTAT)

Roberto Golinelli

University of Bologna - Department of Economics

Carmine Pappalardo

ISTAT, Italian National Statistical Institute

Date Written: January 13, 2014

Abstract

Building on the literature on regularization and dimension reduction methods, we have developed a quarterly forecasting model for euro area GDP. This method consists in bridging quarterly national accounts data using factors extracted from a large panel of monthly and quarterly series including business surveys and financial indicators. The pseudo real-time nature of the information set is accounted for as the pattern of publication lags is considered. Forecast evaluation exercises show that predictions obtained through various dimension reduction methods outperform both the benchmark AR and the diffusion index model without pre-selected indicators. Moreover, forecast combination significantly reduces forecast error.

Keywords: Euro Area GDP forecasts, Bridge and Factor Models, Indicators' selection and pre-screening, Forecasting ability

JEL Classification: C53, C22, E37, F47

Suggested Citation

Girardi, Alessandro and Golinelli, Roberto and Pappalardo, Carmine, The Role of Indicator Selection in Nowcasting Euro Area GDP in Pseudo Real Time (January 13, 2014). Quaderni - Working Paper DSE N° 919, Available at SSRN: https://ssrn.com/abstract=2378777 or http://dx.doi.org/10.2139/ssrn.2378777

Alessandro Girardi (Contact Author)

National Institute of Statistics (ISTAT) ( email )

Via Cesare Balbo 16
00184 Rome, 0185
Italy

Roberto Golinelli

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 209 2638 (Phone)
+39 051 209 2664 (Fax)

Carmine Pappalardo

ISTAT, Italian National Statistical Institute ( email )

Piazza dell' Indipendenza 4
Roma, I-00185
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
37
Abstract Views
501
PlumX Metrics