DP6746 Short-term Forecasts of Euro Area GDP Growth

Author(s):	Elena Angelini, Gonzalo Camba-Mendez, Domenico Giannone, Lucrezia Reichlin, Gerhard Ruenstler
Publication Date:	March 2008
Keyword(s):	Factor Model, Forecasting, Large data-sets, Monetary Policy, News, Real Time Data
JEL(s):	C33, C53, E52
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=6746

This paper evaluates models that exploit timely monthly releases to compute early estimates of current quarter GDP (now-casting) in the euro area. We compare traditional methods used at institutions with a new method proposed by Giannone, Reichlin and Small, 2005. The method consists in bridging quarterly GDP with monthly data via a regression on factors extracted from a large panel of monthly series with different publication lags. We show that bridging via factors produces more accurate estimates than traditional bridge equations. We also show that survey data and other `soft' information are valuable for now-casting.