Forecasting Economic Activity with Higher Frequency Targeted Predictors

49 Pages Posted: 29 Feb 2012

See all articles by Guido Bulligan

Guido Bulligan

Bank of Italy

Massimiliano Giuseppe Marcellino

European University Institute; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Fabrizio Venditti

Bank of Italy

Date Written: January 26, 2012

Abstract

In this paper we explore the performance of bridge and factor models in forecasting quarterly aggregates in the very short-term subject to a pre-selection of monthly indicators. Starting from a large information set, we select a subset of targeted predictors using data reduction techniques as in Bai and Ng (2008). We then compare a Diffusion Index forecasting model as in Stock and Watson (2002), with a Bridge model specified with an automated General-To-Specific routine. We apply these techniques to forecasting Italian GDP growth and its main components from the demand side and find that Bridge models outperform naive forecasts and compare favorably against factor models. Results for France, Germany, Spain and the euro area confirm these findings.

Keywords: short-term GDP forecast, factor models, bridge models, General To Specific

JEL Classification: C52, C53, E37

Suggested Citation

Bulligan, Guido and Marcellino, Massimiliano and Venditti, Fabrizio, Forecasting Economic Activity with Higher Frequency Targeted Predictors (January 26, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 847, Available at SSRN: https://ssrn.com/abstract=2012498 or http://dx.doi.org/10.2139/ssrn.2012498

Guido Bulligan

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Massimiliano Marcellino

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Fabrizio Venditti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
65
Abstract Views
710
rank
369,811
PlumX Metrics