The Prisme Model: Can Disaggregation on the Production Side Help to Forecast GDP?

38 Pages Posted: 9 Jun 2016

See all articles by Thubin Camille

Thubin Camille

Banque de France

Eric Monnet

Banque de France; Paris School of Economics (PSE)

Magali Marx

Banque de France

Vichett Oung

Banque de France

Thomas Ferriere

Banque de France

Date Written: June 1, 2016

Abstract

Although a forecasting model has very good statistical properties and the mean of the residuals equals zero, it can produce systematic errors during a short period. In the case of regular publications, forecasters want to prevent such a persistence of errors over several periods. For this reason, a safeguard model can be used to inform the forecaster when there is a risk that the standard model (i.e. the best specified model on average) leads to persistent errors over several months or quarters.

This paper explains why and how such a safeguard model has been built in order to improve the forecasts of French GDP at the current quarter horizon (nowcasts), which are officially published by the French central bank. The official benchmark model for GDP nowcasts is an aggregated model that relies exclusively on survey in the manufacturing industry. In the long run, this model still has the best performances. On the contrary, the safeguard model is a disaggregated model which features equations for the valued added of 6 sectors. From this example, we provide general remarks on the advantages of disaggregation as well as how such safeguard models can be used in practice.

Keywords: GDP nowcasting, Aggregation, Mixed-frequency data

JEL Classification: C52, C53, E37

Suggested Citation

Camille, Thubin and Monnet, Eric and Marx, Magali and Oung, Vichett and Ferriere, Thomas, The Prisme Model: Can Disaggregation on the Production Side Help to Forecast GDP? (June 1, 2016). Banque de France Working Paper No. 596, Available at SSRN: https://ssrn.com/abstract=2791343 or http://dx.doi.org/10.2139/ssrn.2791343

Thubin Camille (Contact Author)

Banque de France ( email )

Paris
France

Eric Monnet

Banque de France ( email )

Paris
France

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Magali Marx

Banque de France ( email )

Paris
France

Vichett Oung

Banque de France ( email )

Paris
France

Thomas Ferriere

Banque de France ( email )

Paris
France

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