Short Term Forecasts of Economic Activity: Are Fortnightly Factors Useful?

40 Pages Posted: 12 Jul 2018

See all articles by Libero Monteforte

Libero Monteforte

Bank of Italy

Valentina Raponi

Imperial College Business School

Date Written: June 15, 2018

Abstract

A short term mixed-frequency model is proposed to estimate and forecast the Italian economic activity fortnightly. Building on Frale et al. (2011), we introduce a dynamic factor model with three frequencies (quarterly, monthly and fortnightly), by selecting indicators that show significant coincident and leading properties and are representative of both demand and supply. We find that high-frequency indicators improve the real time forecasts of Italian GDP. Moreover, the model provides a new fortnightly indicator of GDP, consistent with the official quarterly series. Our results emphasize the potential benefit of the high frequency series, providing forecasting gains beyond those based on monthly variables alone.

Keywords: factor models, Kalman filter, temporal disaggregation, mixed frequency data, forecasting

JEL Classification: C53, E17, E32, E37

Suggested Citation

Monteforte, Libero and Raponi, Valentina, Short Term Forecasts of Economic Activity: Are Fortnightly Factors Useful? (June 15, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1177. Available at SSRN: https://ssrn.com/abstract=3210741 or http://dx.doi.org/10.2139/ssrn.3210741

Libero Monteforte (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Valentina Raponi

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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