Short-term forecasting of GDP using large monthly datasets - A pseudo real-time forecast evaluation exercise. NBB Working Papers. No. 133, 17 June 2008

Barhoumi, K. and Benk, S. and Cristadoro, R. and Den Reijer, A. and Jakaitiene, A. and Jelonek, P. and Rua, A. and Rünstler, G. and Ruth, K. and Van Nieuwenhuyze, C. (2008) Short-term forecasting of GDP using large monthly datasets - A pseudo real-time forecast evaluation exercise. NBB Working Papers. No. 133, 17 June 2008.

Abstract

This paper evaluates different models for the short-term forecasting of real GDP growth in ten selected European countries and the euro area as a whole. Purely quarterly models are compared with models designed to exploit early releases of monthly indicators for the nowcast and forecast of quarterly GDP growth. Amongst the latter, we consider small bridge equations and forecast equations in which the bridging between monthly and quarterly data is achieved through a regression on factors extracted from large monthly datasets. The forecasting exercise is performed in a simulated real-time context, which takes account of publication lags in the individual series. In general, we find that models that exploit monthly information outperform models that use purely quarterly data and, amongst the former, factor models perform best.