Real-Time Forecasting US GDP from Small-Scale Factor Models

27 Pages Posted: 11 Oct 2014

See all articles by Maximo Camacho

Maximo Camacho

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

Jaime Martinez-Martin

Banco de España

Date Written: October 10, 2014

Abstract

We show that the single-index dynamic factor model developed by Aruoba and Diebold (Am Econ Rev, 100:20-24, 2010) to construct an index of US business cycle conditions is also very useful for forecasting US GDP growth in real time. In addition, we adapt the model to include survey data and financial indicators. We find that our extension is unequivocally the preferred alternative for computing backcasts. In nowcasting and forecasting, our model is able to forecast growth as well as AD and better than several baseline alternatives. Finally, we show that our extension could also be used to infer US business cycles with great accuracy.

Keywords: real-time forecasting, economic indicators, business cycles

JEL Classification: E32, C22, E27

Suggested Citation

Camacho, Maximo and Martinez-Martin, Jaime, Real-Time Forecasting US GDP from Small-Scale Factor Models (October 10, 2014). Banco de Espana Working Paper No. 1425, Available at SSRN: https://ssrn.com/abstract=2508179 or http://dx.doi.org/10.2139/ssrn.2508179

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)

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