A Nowcasting Model for Canada: Do U.S. Variables Matter?

34 Pages Posted: 2 May 2016

See all articles by Daniela Bragoli

Daniela Bragoli

Università Cattolica del Sacro Cuore

Michele Modugno

Board of Governors of the Federal Reserve System

Date Written: 2016-04

Abstract

We propose a dynamic factor model for nowcasting the growth rate of quarterly real{{p}}Canadian gross domestic product. We show that the proposed model produces more accurate nowcasts than those produced by institutional forecasters, like the Bank of Canada, the The Organisation for Economic Co-operation and Development (OECD), and the survey collected by Bloomberg, which reflects the median forecast of market participants. We show that including U.S. data in a nowcasting model for Canada dramatically improves its predictive accuracy, mainly because of the absence of timely production data for Canada. Moreover, Statistics Canada produces a monthly real GDP measure along with the quarterly one, and we show how to modify the state space representation of our model to properly link the monthly GDP with its quarterly counterpart.

Keywords: Nowcasting, Updating, Dynamic Factor Model

JEL Classification: C33, C53, E37

Suggested Citation

Bragoli, Daniela and Modugno, Michele, A Nowcasting Model for Canada: Do U.S. Variables Matter? (2016-04). FEDS Working Paper No. 2016-036, Available at SSRN: https://ssrn.com/abstract=2772899 or http://dx.doi.org/10.17016/FEDS.2016.036

Daniela Bragoli (Contact Author)

Università Cattolica del Sacro Cuore ( email )

via Necchi 9
Milan
Italy

Michele Modugno

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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