Spain‐sting: Spain Short‐term Indicator of Growth*

Abstract

We develop a dynamic factor model to compute short-term forecasts of the Spanish GDP growth in real time. With this model, we compute a business cycle index which operates as an indicator of the business cycle conditions in Spain. To examine its real-time forecasting accuracy, we use real-time data vintages from 2008.02 through 2009.01. We conclude that the model exhibits good forecasting performance anticipating the recent and sudden downturn.

A chronology of turning points in economic activity: Spain, 1850–2011

“…We report the optimal thresholds for each index that would allow one to determine whether the economy is in expansion or recession using equal weights. See text for more details indexes: an index produced by FEDEA, 20 a composite index of leading indicators constructed by the OECD, 21 the MICA-BBVA 22 index of Camacho and Doménech (2011), and the Spain-STING 23 of Camacho and Quirós (2011). In very broad terms, we can characterize these indexes as factors from a model that combines activity indicator variables, sometimes observed at different frequencies.…”

“…From that perspective, our investigation will take us to consider a variety of such indicators that have been proposed to characterize business conditions in Spain. Among these, we will investigate the OECD's composite leading indicator (CLI) index, 6 the index of economic activity constructed by the Spanish think tank FEDEA, 7 and two recent more sophisticated indexes, the MICA-BBVA index 8 of Camacho and Doménech (2011), and Spain-STING 9 by Camacho and Quirós (2011).…”

MICA-BBVA: a factor model of economic and financial indicators for short-term GDP forecasting

“…In the context of the Spanish economy, Camacho and Perez Quiros (2011) find that financial series do not provide valuable information to develop GDP growth forecasts from a dynamic factor model apart from that contained in hard and soft indicators. However, they reach this result after relating financial series with contemporaneous movements in the common factor.…”

“…In the context of forecasting Spanish economic activity, this paper is closely related to Camacho and Sancho (2003) and to Camacho and Perez Quiros (2011), who propose alternative methods for providing forecasts by using large-scale and small-scale factor models, respectively (see also Cuevas and Quilis 2009). 1 However, three distinctive features characterize the specification and the model evaluation process proposed in this paper.…”

“…In contrast to the research by Camacho and Perez Quiros (2011), where the sample started in the mid nineties, we allow our data set to date back to the early eighties. Accordingly, the business cycle indicator is available from that date, and the forecasting evaluation includes other significant expansions and slowdowns, apart from the current 2008-2009 recession, reinforcing the empirical reliability of our results.…”