Robust Implementation of a Parsimonious Dynamic Factor Model to Nowcast GDP

CESifo working paper no. 4574

19 Pages Posted: 20 Jan 2014

See all articles by Pablo Duarte

Pablo Duarte

University of Leipzig - Institute for Empirical Research in Economics (IEW) / Econometrics; affiliation not provided to SSRN

Bernd Süssmuth

University of Leipzig; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2014

Abstract

Quarterly GDP figures usually are published with a delay of some weeks. A common way to generate GDP series of higher frequency, i.e. to nowcast GDP, is to use available indicators to calculate a single index by means of a common factor derived from a dynamic factor model (DFM). This paper deals with the implementation stage of this practice. We propose a twotiered mechanism consisting in the identification of variables highly correlated with GDP as “core” indicators and a check of robustness of these variables in the sense of extreme bounds analysis. Accordingly selected indicators are used in an approximate DFM framework to exemplarily nowcast Spanish GDP growth. We show that our implementation produces more accurate nowcasts than both a benchmark stochastic process and the implementation based on the total set of core indicators.

Keywords: small-scale nowcasting models, Kalman Filter, extreme bounds analysis

JEL Classification: C380, C530

Suggested Citation

Duarte, Pablo and Süssmuth, Bernd, Robust Implementation of a Parsimonious Dynamic Factor Model to Nowcast GDP (January 20, 2014). CESifo working paper no. 4574, Available at SSRN: https://ssrn.com/abstract=2381876 or http://dx.doi.org/10.2139/ssrn.2381876

Pablo Duarte

University of Leipzig - Institute for Empirical Research in Economics (IEW) / Econometrics ( email )

Grimmaische Strasse 12
Leipzig, 04109
Germany

affiliation not provided to SSRN

Bernd Süssmuth (Contact Author)

University of Leipzig ( email )

IEW Institute for Empirical Research in Economics
Grimmaische Str. 12
Leipzig, D-04109
Germany
+49 341 97 33782 (Phone)
+49 341 97 33789 (Fax)

HOME PAGE: http://www.wifa.uni-leipzig.de/iew/professur-oekonometrie/team/prof-dr-bernd-suessmuth.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
39
Abstract Views
418
PlumX Metrics