Estimating and Forecasting the Euro Area Monthly National Accounts from a Dynamic Factor Model

Abstract

We estimate and forecast growth in euro area monthly GDP and its components from a dynamic factor model due to Doz et al. (2005), which handles unbalanced data sets in an efficient way. We extend the model to integrate interpolation and forecasting together with cross-equation accounting identities. A pseudo real-time forecasting exercise indicates that the model outperforms various benchmarks, such as quarterly time series models and bridge equations in forecasting growth in quarterly GDP and its components.

Keywords: dynamic factor models, interpolation, nowcasting

JEL Classification: E37, C53