Arbeitspapier

Lean' versus 'rich' data sets: Forecasting during the great moderation and the great recession

We evaluate forecasts for the euro area in data-rich and 'data-lean' environments by comparing three different approaches: a simple PMI model based on Purchasing Managers' Indices (PMIs), a dynamic factor model with euro area data, and a dynamic factor model with data from the euro plus data from national economies (pseudo-real time data). We estimate backcasts, nowcasts and forecasts for GDP, components of GDP, and GDP of all individual euro area members, and examine forecasts for the 'Great Moderation' (2000-2007) and the 'Great Recession' (2008-2009) separately. All models consistently beat naive AR benchmarks. More data does not necessarily improve forecasting accuracy: For the factor model, adding monthly indicators from national economies can lead to more uneven forecasting accuracy, notably when forecasting components of euro area GDP during the Great Recession. This suggests that the merits of national data may reside in better estimation of heterogeneity across GDP components, rather than in improving headline GDP forecasts for individual euro area countries. Comparing factor models to the much simpler PMI model, we find that the dynamic factor model dominates the latter during the Great Moderation. However, during the Great Recession, the PMI model has the advantage that survey-based measures respond faster to changes in the outlook, whereas factor models are more sluggish in adjusting. Consequently, the dynamic factor model has relatively more difficulties beating the PMI model, with relatively large errors in forecasting some countries or components of euro area GDP.

Language
Englisch

Bibliographic citation
Series: Bank of Canada Working Paper ; No. 2010-37

Classification
Wirtschaft
Econometric Modeling: General
Forecasting Models; Simulation Methods
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Money and Interest Rates: Forecasting and Simulation: Models and Applications
Subject
Econometric and statistical methods
International topics
Prognose
Prognoseverfahren
Sozialprodukt
Eurozone

Event
Geistige Schöpfung
(who)
Lombardi, Marco J.
Maier, Philipp
Event
Veröffentlichung
(who)
Bank of Canada
(where)
Ottawa
(when)
2010

DOI
doi:10.34989/swp-2010-37
Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Lombardi, Marco J.
  • Maier, Philipp
  • Bank of Canada

Time of origin

  • 2010

Other Objects (12)