Nowcasting GDP in Real-Time: A Density Combination Approach

43 Pages Posted: 30 Sep 2011

See all articles by Knut Are Aastveit

Knut Are Aastveit

University of Oslo - Department of Economics

Karsten R. Gerdrup

Central Bank of Norway

Anne Sofie Jore

Norges Bank

Leif Anders Thorsrud

Norges Bank; BI Norwegian Business School

Date Written: September 27, 2011

Abstract

In this paper we use U.S. real-time vintage data and produce combined density nowcasts for quarterly GDP growth from a system of three commonly used model classes. The density nowcasts are combined in two steps. First, a wide selection of individual models within each model class are combined separately. Then, the nowcasts from the three model classes are combined into a single predictive density. We update the density nowcast for every new data release throughout the quarter, and highlight the importance of new information for the evaluation period 1990Q2-2010Q3. Our results show that the logarithmic score of the predictive densities for U.S. GDP increase almost monotonically as new information arrives during the quarter. While the best performing model class is changing during the quarter, the density nowcasts from our combination framework is always performing well both in terms of logarithmic scores and calibration tests. The density combination approach is superior to a simple model selection strategy and also performs better in terms of point forecast evaluation than standard point forecast combinations.

Keywords: Density combination, Forecast densities, Forecast evaluation, Monetary policy, Nowcasting, Real-time data

JEL Classification: C32, C52, C53, E37, E52

Suggested Citation

Aastveit, Knut Are and Gerdrup, Karsten R. and Jore, Anne Sofie and Thorsrud, Leif Anders, Nowcasting GDP in Real-Time: A Density Combination Approach (September 27, 2011). Norges Bank Working Paper No. 2011/11, Available at SSRN: https://ssrn.com/abstract=1935860 or http://dx.doi.org/10.2139/ssrn.1935860

Knut Are Aastveit

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Karsten R. Gerdrup (Contact Author)

Central Bank of Norway ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Anne Sofie Jore

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Leif Anders Thorsrud

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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