An Application of Dynamic Factor Models to Nowcast Regional Economic Activity in Spain

29 Pages Posted: 8 Mar 2019

See all articles by Maria Gil

Maria Gil

Banco de España

Danilo Leiva-Leon

Banco de España

Javier J. Pérez

Banco de España - Research Department

Alberto Urtasun

Banco de España

Date Written: March 8, 2019

Abstract

The goal of this paper is to propose a model to produce nowcasts of GDP growth of Spanish regions, by means of dynamic factor models. This framework is capable to incorporate in a parsimonious way the relevant information available at the time that each forecast is made. We employ a Bayesian perspective to provide robust estimation of all the ingredients involved in the model. Accordingly, we introduce the Bayesian Factor model for Regions (BayFaR), which allows for the inclusion of missing data and combines quarterly data on regional real output growth (taken from the database of the AIReF and from the individual regional statistics institutes, when available) and monthly information associated to indicators of regional real activity. We apply the BayFaR to nowcast the GDP growth of the four largest regions of Spain, and illustrate the real-time nowcasting performance of the proposed framework for each case. We also apply the model to nowcast Spanish GDP in order to be able to assess the relative growth of each region.

Keywords: regional activity, nowcasting, dynamic factor model

JEL Classification: C32, E37, R13

Suggested Citation

Gil, Maria and Leiva-Leon, Danilo and Perez, Javier J. and Urtasun, Alberto, An Application of Dynamic Factor Models to Nowcast Regional Economic Activity in Spain (March 8, 2019). Banco de Espana Occasional Paper No. 1904 (2019), Available at SSRN: https://ssrn.com/abstract=3349124 or http://dx.doi.org/10.2139/ssrn.3349124

Maria Gil (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Danilo Leiva-Leon

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Javier J. Perez

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

HOME PAGE: http://www.bde.es/investigador/staff/95.htm

Alberto Urtasun

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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