New Eurocoin: Tracking Economic Growth in Real Time

44 Pages Posted: 13 Aug 2007  

Giovanni Veronese

Bank of Italy

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Centre for Economic Policy Research (CEPR)

Marco Lippi

Dipartimento di Scienze Economiche (DiSSE); Einaudi Institute for Economics and Finance (EIEF)

Filippo Altissimo

Brevan Howard Asset Management LLP

Riccardo Cristadoro

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: June 2007

Abstract

This paper presents ideas and methods underlying the construction of an indicator that tracks the euro area GDP growth, but, unlike GDP growth, (i) is updated monthly and almost in real time; (ii) is free from short-run dynamics. Removal of short-run dynamics from a time series, to isolate the medium to long-run component, can be obtained by a band-pass filter. However, it is well known that band-pass filters, being two-sided, perform very poorly at the end of the sample. New Eurocoin is an estimator of the medium to long-run component of the GDP that only uses contemporaneous values of a large panel of macroeconomic time series, so that no end-of-sample deterioration occurs. Moreover, as our dataset is monthly, New Eurocoin can be updated each month and with a very short delay. Our method is based on generalized principal components that are designed to use leading variables in the dataset as proxies for future values of the GDP growth. As the medium to long-run component of the GDP is observable, although with delay, the performance of New Eurocoin at the end of the sample can be measured.

Keywords: coincident indicator, band-pass filter, large-dataset factor models, generalized principal components

JEL Classification: C51, E32, O30

Suggested Citation

Veronese, Giovanni and Forni, Mario and Lippi, Marco and Altissimo, Filippo and Cristadoro, Riccardo, New Eurocoin: Tracking Economic Growth in Real Time (June 2007). Bank of Italy Temi di Discussione (Working Paper) No. 631. Available at SSRN: https://ssrn.com/abstract=1005171 or http://dx.doi.org/10.2139/ssrn.1005171

Giovanni Furio Veronese (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+49 621 189 1886 (Phone)
+49 621 189 1884 (Fax)

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy
+39 059 205 6852 (Phone)
+39 059 205 6947 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Marco Lippi

Dipartimento di Scienze Economiche (DiSSE) ( email )

14 Via Cesalpino
Rome, 00161
Italy
+39 06 4428 4202 (Phone)
+39 06 4404 572 (Fax)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Filippo Altissimo

Brevan Howard Asset Management LLP ( email )

2nd Floor Almack House
28 King Street
London, SW1Y 6XA
United Kingdom

Riccardo Cristadoro

Bank of Italy ( email )

Via Nazionale 91
Servizio Studi
00184 Roma
Italy
+39 06 4792 3341 (Phone)
+39 06 4792 3720 (Fax)

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