New Eurocoin: Tracking Economic Growth in Real Time

37 Pages Posted: 18 Jul 2006

See all articles by Filippo Altissimo

Filippo Altissimo

Brevan Howard Asset Management LLP

Riccardo Cristadoro

Bank of Italy

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Centre for Economic Policy Research (CEPR)

Marco Lippi

Dipartimento di Scienze Economiche (DiSSE); Einaudi Institute for Economics and Finance (EIEF)

Giovanni Veronese

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: April 2006

Abstract

This paper presents ideas and methods underlying the construction of a timely coincident index that tracks euro-area GDP growth, but, unlike GDP growth, (i) is updated monthly and almost in real time; (ii) is free from seasonal and shorter-run dynamics. We take as target the medium- long-run component of the GDP growth, defined in the frequency domain as including only waves of period larger than one year. We estimate the target by projecting it on generalized principal components extracted from a large panel of monthly macroeconomic series. The main contribution of the paper is that current values of our principal components, derived from a dynamic factor model, act as proxies for future values of GDP growth. In this way we improve with respect to the end-of-sample poor estimation which is typical with band-pass filters. Moreover, as it is defined as an estimate of a target which is observable (although with delay), the performance of our index at the end of the sample can be measured.

Keywords: Coincident index, band-pass filter, large dataset factor models, generalized principal components

JEL Classification: C51, E32, O30

Suggested Citation

Altissimo, Filippo and Cristadoro, Riccardo and Forni, Mario and Lippi, Marco and Veronese, Giovanni Furio, New Eurocoin: Tracking Economic Growth in Real Time (April 2006). CEPR Discussion Paper No. 5633. Available at SSRN: https://ssrn.com/abstract=916762

Filippo Altissimo (Contact Author)

Brevan Howard Asset Management LLP ( email )

2nd Floor Almack House
28 King Street
London, SW1Y 6XA
United Kingdom

Riccardo Cristadoro

Bank of Italy ( email )

Via Nazionale 91
Servizio Studi
00184 Roma
Italy
+39 06 4792 3341 (Phone)
+39 06 4792 3720 (Fax)

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy
+39 059 205 6852 (Phone)
+39 059 205 6947 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marco Lippi

Dipartimento di Scienze Economiche (DiSSE) ( email )

14 Via Cesalpino
Rome, 00161
Italy
+39 06 4428 4202 (Phone)
+39 06 4404 572 (Fax)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Giovanni Furio Veronese

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+49 621 189 1886 (Phone)
+49 621 189 1884 (Fax)

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