Estimating and Forecasting the Euro Area Monthly National Accounts from a Dynamic Factor Model

We estimate and forecast growth in euro area monthly GDP and its components from the dynamic factor model of Doz et al. (2006), which handles unbalanced data sets in an efficient way. We extend the model to integrate interpolation and forecasting with cross-equation accounting identities. A pseudo real-time forecasting exercise indicates that the model outperforms various benchmarks, such as quarterly time-series models and bridge equations, in forecasting growth in quarterly GDP and its components.

[1]  J. Bai,et al.  Determining the Number of Factors in Approximate Factor Models , 2000 .

[2]  U. Fritsche,et al.  Sticky Information Phillips Curves: European Evidence , 2008, SSRN Electronic Journal.

[3]  Marcel Fratzscher,et al.  Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute How Successful Is the G7 in Managing Exchange Rates? , 2022 .

[4]  T. Peltonen,et al.  Imports and Profitability in the Euro Area Manufacturing Sector: The Role of Emerging Market Economies , 2008, SSRN Electronic Journal.

[5]  Kai Philipp Christoffel,et al.  Resuscitating the Wage Channel in Models with Unemployment Fluctuations , 2008 .

[6]  Katja Drechsel,et al.  Flow on Conjunctural Information and Forecast of Euro Area Economic Activity , 2008 .

[7]  Serena Ng,et al.  Are more data always better for factor analysis , 2006 .

[8]  V. Gaspar,et al.  Macroeconomic Adjustment to Monetary Union , 2008, SSRN Electronic Journal.

[9]  J. Huerga,et al.  An Application of Index Numbers Theory to Interest Rates , 2008, SSRN Electronic Journal.

[10]  M. Hallin,et al.  The Generalized Dynamic-Factor Model: Identification and Estimation , 2000, Review of Economics and Statistics.

[11]  Annalisa Ferrando,et al.  The Impact of Financial Position on Investment: An Analysis for Non-Financial Corporations in the Euro Area , 2008, SSRN Electronic Journal.

[12]  C. R. Marques,et al.  Wage and Price Dynamics in Portugal , 2008 .

[13]  Roland Beck,et al.  Optimal Reserve Composition in the Presence of Sudden Stops: The Euro and the Dollar as Safe Haven Currencies , 2008, SSRN Electronic Journal.

[14]  M. Sánchez.  Monetary Stabilisation in a Currency Union of Small Open Economies , 2008 .

[15]  I. Daubechies,et al.  Sparse and stable Markowitz portfolios , 2007, Proceedings of the National Academy of Sciences.

[16]  Tommaso Proietti,et al.  Estimation of Common Factors under Cross-Sectional and Temporal Aggregation Constraints: Nowcasting Monthly GDP and its Main Components , 2008 .

[17]  Marco Lippi,et al.  The Generalized Dynamic Factor Model , 2002 .

[18]  C. Nickel,et al.  Fiscal Policies, the Current Account and Ricardian Equivalence , 2008, SSRN Electronic Journal.

[19]  Pedro Gomes,et al.  Corporate Tax Competition and the Decline of Public Investment , 2008, SSRN Electronic Journal.

[20]  S. Adjemian,et al.  Towards a Monetary Policy Evaluation Framework , 2008, SSRN Electronic Journal.

[21]  John Kitchen,et al.  Real-Time Forecasting in Practice: The U.S. Treasury Staff's Real-Time GDP Forecast System , 2003 .

[22]  Jörg Breitung,et al.  Real-Time Forecasting of GDP Based on a Large Factor Model with Monthly and Quarterly Data , 2007, SSRN Electronic Journal.

[23]  Gianluca Cafiso.  Euro's Influence upon Trade: Rose Effect versus Border Effect , 2008, SSRN Electronic Journal.

[24]  Melvin J. Hinich,et al.  Time Series Analysis by State Space Methods , 2001 .

[25]  Maurizio Michael Habib,et al.  Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity , 2008, SSRN Electronic Journal.

[26]  Gonzalo Camba-Mendez,et al.  Short-Term Forecasts of Euro Area GDP Growth , 2008, SSRN Electronic Journal.

[27]  Klaus Schaeck,et al.  How Does Competition Affect Efficiency and Soundness in Banking? New Empirical Evidence , 2008, SSRN Electronic Journal.

[28]  Geert Bekaert,et al.  International Stock Return Comovements , 2005 .

[29]  Anders Warne,et al.  The New Area-Wide Model of the Euro Area: A Micro-Founded Open-Economy Model for Forecasting and Policy Analysis , 2008, SSRN Electronic Journal.

[30]  G. Chow,et al.  Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series , 1971 .

[31]  Matteo Barigozzi,et al.  A Review of Nonfundamentalness and Identification in Structural VAR Models , 2008 .

[32]  Catherine Doz,et al.  A Two-Step Estimator for Large Approximate Dynamic Factor Models Based on Kalman Filtering , 2007 .

[33]  Paul Newbold,et al.  Testing the equality of prediction mean squared errors , 1997 .

[34]  Marie Diron,et al.  Short-Term Forecasts of Euro Area Real GDP Growth: An Assessment of Real-Time Performance Based on Vintage Data , 2006, SSRN Electronic Journal.

[35]  R. Mestre,et al.  Is Forecasting with Large Models Informative? Assessing the Role of Judgement in Macroeconomic Forecasts , 2008 .

[36]  Marta Bańbura,et al.  A Look into the Factor Model Black Box: Publication Lags and the Role of Hard and Soft Data in Forecasting GDP , 2007, SSRN Electronic Journal.

[37]  Siem Jan Koopman,et al.  Time Series Analysis by State Space Methods , 2001 .

[38]  R. Golinelli,et al.  Bridge models to forecast the euro area GDP , 2004 .

[39]  D. Furceri,et al.  Government Spending Volatility and the Size of Nations , 2008, SSRN Electronic Journal.

[40]  Michael P. Clements,et al.  FORECASTING ECONOMIC TIME SERIES , 2000, Econometric Theory.

[41]  R. Mariano,et al.  A New Coincident Index of Business Cycles Based on Monthly and Quarterly Series , 2002 .

[42]  Roberto A. De Santis,et al.  Euro Area Money Demand and International Portfolio Allocation: A Contribution to Assessing Risks to Price Stability , 2008, SSRN Electronic Journal.

[43]  D. Furceri,et al.  Real Convergence in Central and Eastern European EU Member States: Which Role for Exchange Rate Volatility? , 2008, SSRN Electronic Journal.

[44]  Massimiliano Marcellino,et al.  Interpolation and Backdating with a Large Information Set , 2003 .

[45]  David H. Small,et al.  Nowcasting: the real time informational content of macroeconomic data releases , 2008 .

[46]  Antoine Berthou,et al.  An Investigation on the Effect of Real Exchange Rate Movements on OECD Bilateral Exports , 2008 .

[47]  Siem Jan Koopman,et al.  Computing Observation Weights for Signal Extraction and Filtering , 2003 .

[48]  Leading Indicators for Euro-Area Inflation and GDP Growth , 2003 .

[49]  S. Dées,et al.  Import price dynamics in major advanced economies and heterogeneity in exchange rate pass-through , 2008, SSRN Electronic Journal.

[50]  Martin Schmitz,et al.  Channels of international risk-sharing: capital gains versus income flows , 2008, SSRN Electronic Journal.

[51]  J. Stock,et al.  Macroeconomic Forecasting Using Diffusion Indexes , 2002 .

[52]  Frank Stähler,et al.  Foreign Direct Investment and Environmental Taxes , 2008 .

[53]  James Mitchell,et al.  An Indicator of Monthly GDP and an Early Estimate of Quarterly GDP Growth , 2005 .