Short-Term Forecasting for Empirical Economists. A Survey of the Recently Proposed Algorithms

63 Pages Posted: 13 Nov 2013

See all articles by Maximo Camacho

Maximo Camacho

Autonomous University of Barcelona - Department of Economics; Universidad de Murcia - Departamento de Metodos Cuantitativos

Gabriel Perez-Quiros

Banco de España

Pilar Poncela

Universidad Autónoma de Madrid

Date Written: November 13, 2013

Abstract

Practitioners do not always use research findings, as the research is not always conducted in a manner relevant to real-world practice. This survey seeks to close the gap between research and practice in respect of short-term forecasting in real time. To this end, we review the most relevant recent contributions to the literature, examining their pros and cons, and we take the liberty of proposing some avenues of future research. We include bridge equations, MIDAS, VARs, factor models and Markov-switching factor models, all allowing for mixed-frequency and ragged ends. Using the four constituent monthly series of the Stock-Watson coincident index, industrial production, employment, income and sales, we evaluate their empirical performance to forecast quarterly US GDP growth rates in real time. Finally, we review the main results having regard to the number of predictors in factor-based forecasts and how the selection of the more informative or representative variables can be made.

Keywords: Forecasting, GDP growth, time series

JEL Classification: E32, C22, E27

Suggested Citation

Camacho, Maximo and Perez-Quiros, Gabriel and Poncela, Pilar, Short-Term Forecasting for Empirical Economists. A Survey of the Recently Proposed Algorithms (November 13, 2013). Banco de Espana Working Paper No. 1318, Available at SSRN: https://ssrn.com/abstract=2353772 or http://dx.doi.org/10.2139/ssrn.2353772

Maximo Camacho (Contact Author)

Autonomous University of Barcelona - Department of Economics ( email )

Avda. Diagonal 690
Barcelona, 08034
Spain

Universidad de Murcia - Departamento de Metodos Cuantitativos ( email )

Campus de Espinardo
30100 Murcia
Spain
+34 968 367 982 (Phone)

Gabriel Perez-Quiros

Banco de España ( email )

Madrid 28014
Spain

Pilar Poncela

Universidad Autónoma de Madrid ( email )

Campus Cantoblanco
C/Kelsen, 1
Madrid, Madrid 28049
Spain

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