DP7007 A Monthly Indicator of the Euro Area GDP

Author(s): Cecilia Frale, Massimiliano Marcellino, Gian Luigi Mazzi, Tommaso Proietti
Publication Date: October 2008
Keyword(s): Chain-linking, Dynamic factor Models, euro area GDP, Kalman filter and smoother, Multivariate State Space Models, Temporal Disaggregation
JEL(s): C53, E32, E37
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7007

A continuous monitoring of the evolution of the economy is fundamental for the decisions of public and private decision makers. This paper proposes a new monthly indicator of the euro area real Gross Domestic Product (GDP), with several original features. First, it considers both the output side (six branches of the NACE classification) and the expenditure side (the main GDP components) and combines the two estimates with optimal weights reflecting their relative precision. Second, the indicator is based on information at both the monthly and quarterly level, modelled with a dynamic factor specification cast in state-space form. Third, since estimation of the multivariate dynamic factor model can be numerically complex, computational efficiency is achieved by implementing univariate filtering and smoothing procedures. Finally, special attention is paid to chain-linking and its implications, via a multistep procedure that exploits the additivity of the volume measures expressed at the prices of the previous year.