Testing Big Data in a Big Crisis: Nowcasting under COVID-19

38 Pages Posted: 29 Mar 2022

See all articles by Luca Barbaglia

Luca Barbaglia

European Commission-Joint Research Centre

Lorenzo Frattarolo

European Commission-Joint Research Centre

Luca Onorante

Joint Research Centre, Italy

Luca Tiozzo Pezzoli

European Commission - Joint Research Centre

Filippo M. Pericoli

European Commission-Joint Research Centre

Marco Ratto

European Commission - Joint Research Center

Date Written: March 25, 2022

Abstract

During the COVID-19 pandemic, economists have struggled to obtain reliable economic predictions, with standard models becoming outdated and their forecasting performance deteriorating rapidly. This paper presents two novelties that could be adopted by forecasting institutions in unconventional times. The first innovation is the construction of a large data set for macroeconomic forecasting in Europe. We collect more than a thousand time series from conventional and unconventional sources: we complement traditional macroeconomic variables with timely big data indicators, and assess their added value at nowcasting. The second novelty consists of a methodology to merge an enormous amount of non-encompassing data and a large battery of classical and more sophisticated forecasting methods in a seamlessly dynamic Bayesian framework. Specifically, we introduce an innovative "selection prior'' that is used not as a way to influence model outcomes, but as a selecting device among competing models. This allows the search for better specifications to go hand in hand with the forecasting process. By applying this methodology to the COVID-19 crisis, we show which variables are good predictors for nowcasting purposes and draw lessons for dealing with possible future crises.

Keywords: Bayesian Model Averaging, Big Data, COVID-19 Pandemic, Nowcasting

JEL Classification: C11, C30, E3, E37

Suggested Citation

Barbaglia, Luca and Frattarolo, Lorenzo and Onorante, Luca and Tiozzo Pezzoli, Luca and Pericoli, Filippo M. and Ratto, Marco, Testing Big Data in a Big Crisis: Nowcasting under COVID-19 (March 25, 2022). Available at SSRN: https://ssrn.com/abstract=4066479. or http://dx.doi.org/10.2139/ssrn.4066479

Luca Barbaglia

European Commission-Joint Research Centre ( email )

Joint Research Centre, European Commission, Rue du

Lorenzo Frattarolo

European Commission-Joint Research Centre ( email )

Joint Research Centre, European Commission, Rue du
Brussels, Brussels 1050
Belgium

Luca Onorante

Joint Research Centre, Italy

Via E. Fermi 1
I-21020 Ispra (VA)
United States

Luca Tiozzo Pezzoli (Contact Author)

European Commission - Joint Research Centre ( email )

Via Enrico Fermi 2749, Ispra, VA
Ispra, 21027
Italy

Filippo M. Pericoli

European Commission-Joint Research Centre ( email )

Marco Ratto

European Commission - Joint Research Center ( email )

Via E. Fermi 2749
Brussels, B-1049
Belgium

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