DP7883 Nowcasting

Author(s): Marta Banbura, Domenico Giannone, Lucrezia Reichlin
Publication Date: June 2010
Keyword(s): Factor Model, Forecasting, News, Nowcasting
JEL(s): C33, C53, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7883

We define nowcasting as the prediction of the present, the very near future and the very recent past. Key in this process is to use timely monthly information in order to nowcast quarterly variables that are published with long delays. We argue that the nowcasting process goes beyond the simple production of an early estimate and it consists in the analysis of the link between the news in consecutive data releases and the resulting forecast revisions for the target variable. We describe an econometric framework that allows us to mimic, via a coherent statistical model, the judgemental process of nowcasting traditionally conducted in policy institutions and used, alongside the judgemental procedures, in many central banks. To illustrate our ideas, we study the nowcast of euro area GDP in the fourth quarter of 2008.