Introducing the euro‐sting: Short‐term indicator of euro area growth

Abstract

SUMMARYWe set out a model to compute short-term forecasts of the euro area GDP growth in real time. To allow for forecast evaluation, we construct a real-time dataset that changes for each vintage date and includes the exact information that was available at the time of each forecast. With this dataset we show that our simple factor model algorithm, which uses an easy-to-replicate methodology, is able to forecast the euro area GDP growth as well as professional forecasters who can combine the best forecasting tools with the possibility of incorporating their own judgement. In this context, we provide examples showing how data revisions and data availability affect point forecasts and forecast uncertainty.

The Role of Indicator Selection in Nowcasting Euro Area GDP in Pseudo Real Time

“…The majority of studies simply convert all the data at the lower available frequency by taking quarterly averages of monthly indicators, and the ragged-(or jagged-) edge nature of the data requires that missing monthly observations for the quarter to be forecast are predicted usually with univariate autoregressive models; on this, see McGuckin et al (2007). 3 Camacho and Perez-Quiros (2010), Camacho et al (2012), Ferrara et al (2010), Giannone et al (2009, Kuzin et al (2009) are notable exceptions, as they respectively use approximate Kalman filter models, Markov-switching dynamic factors, non parametric methods, mixedfrequency VARs, and MIDAS regressions of Clements and Galvão (2008).…”

Robust Implementation of a Parsimonious Dynamic Factor Model to Nowcast GDP

“…States, Camacho and Doménech (2012) for Spain, Angelini et al (2008a), Angelini et al (2008b), Camacho and Perez-Quiros (2010), and Camacho and Garcia-Serrador (2013) for the Euro Area. 2 They modify the "exact" DFM by Stock and Watson (1991) to account for problems of different frequency and asynchronous publication of series underlying the real-time forecast in applying a Kalman Filter strategy to fill up the series.…”

“…However, for industrialized economies in the contemporary world GDP data is published quarterly and information on GDP growth usually becomes available with a lag of six weeks seen from the end of a particular quarter through so-called flash or first releases. 1 First releases are early announcements of second releases also referred to as final estimates (Camacho and Perez-Quiros, 2010;Camacho and Doménech, 2012). The latter are released about 14 weeks after the respective quarter has ended and are possibly subject to revisions and corrections.…”

“…This circumstance has led several influential institutions such as the OECD to forecast growth rates of macroeconomic aggregates in real time and to make projections available on a more timely basis. Besides these "judgement based" real-time forecasts (Camacho and Perez-Quiros, 2010), monthly indicators are circulated that are drawn from official statistics or from surveys.…”

Nowcasting US GDP: The role of ISM business surveys

“…While this literature has had a long and interesting history, there has been intense interest over the last few years in nowcasting, which is the task of predicting the present, the very recent past, or the very near future of GDP, and some other macro variables as well. Some important recent contributions in this area are Evans (2005), Giannone et al (2008Giannone et al ( , 2010, Banbura et al (2011), Barhoumi et al (2010), Camacho and Perez-Quiros (2010), Frale et al (2010Frale et al ( , 2011, Foroni and Marcellino (2011), and Kuzin et al (2011) 1 .…”