Nowcasting with Large Bayesian Vector Autoregressions

30 Pages Posted: 13 Aug 2020

See all articles by Jacopo Cimadomo

Jacopo Cimadomo

European Central Bank

Domenico Giannone

Centre for Economic Policy Research (CEPR)

Michele Lenza

European Central Bank (ECB)

Andrej Sokol

Bank of England

Francesca V. Monti

European Central Bank

Date Written: August, 2020

Abstract

Monitoring economic conditions in real time, or nowcasting, is among the key tasks routinely performed by economists. Nowcasting entails some key challenges, which also characterise modern Big Data analytics, often referred to as the three \Vs": the large number of time series continuously released (Volume), the complexity of the data covering various sectors of the economy, published in an asynchronous way and with different frequencies and precision (Variety), and the need to incorporate new information within minutes of their release (Velocity). In this paper, we explore alternative routes to bring Bayesian Vector Autoregressive (BVAR) models up to these challenges. We find that BVARs are able to effectively handle the three Vs and produce, in real time, accurate probabilistic predictions of US economic activity and, in addition, a meaningful narrative by means of scenario analysis.

Keywords: Big Data, business cycles, forecasting, mixed frequencies, real time, scenario analysis

JEL Classification: E32, E37, C01, C33, C53

Suggested Citation

Cimadomo, Jacopo and Giannone, Domenico and Lenza, Michele and Sokol, Andrej and Monti, Francesca V., Nowcasting with Large Bayesian Vector Autoregressions (August, 2020). ECB Working Paper No. 20202453, Available at SSRN: https://ssrn.com/abstract=3672229

Jacopo Cimadomo (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Domenico Giannone

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michele Lenza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andrej Sokol

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Francesca V. Monti

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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