Forecasting the World Economy in the Short-Term

44 Pages Posted: 12 Jun 2009

See all articles by Audrone Jakaitiene

Audrone Jakaitiene

Vilnius university

Stephane Dees

European Central Bank (ECB)

Date Written: June 10, 2009


Forecasting the world economy is a difficult task given the complex interrelationships within and across countries. This paper proposes a number of approaches to forecast short-term changes in selected world economic variables and aims, first, at ranking various forecasting methods in terms of forecast accuracy and, second, at checking whether methods forecasting directly aggregate variables (direct approaches) outperform methods based on the aggregation of country-specific forecasts (bottom-up approaches). Overall, all methods perform better than a simple benchmark for short horizons (up to three months ahead). Among the forecasting approaches used, factor models appear to perform the best. Moreover, direct approaches outperform bottom-up ones for real variables, but not for prices. Finally, when country-specific forecasts are adjusted to match direct forecasts at the aggregate levels (top-down approaches), the forecast accuracy is neither improved nor deteriorated (i.e. top-down and bottom-up approaches are broadly equivalent in terms of country-specific forecast accuracy).

Keywords: factor models, forecasts, time series models

JEL Classification: C53, C32, E37, F17

Suggested Citation

Jakaitiene, Audrone and Dees, Stephane, Forecasting the World Economy in the Short-Term (June 10, 2009). ECB Working Paper No. 1059. Available at SSRN:

Audrone Jakaitiene

Vilnius university ( email )

Akademijos str. 4
Vilnius, LT-08663

Stephane Dees (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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