Empirical Economics

, Volume 47, Issue 1, pp 347–364

Real-time forecasting US GDP from small-scale factor models

Article

DOI: 10.1007/s00181-013-0731-4

Cite this article as:
Camacho, M. & Martinez-Martin, J. Empir Econ (2014) 47: 347. doi:10.1007/s00181-013-0731-4

Abstract

We show that the single-index dynamic factor model developed by Aruoba and Diebold (Am Econ Rev, 100:20–24, 2010) to construct an index of the US business cycle conditions is also very useful to forecast US GDP growth in real time. In addition, we adapt the model to include survey data and financial indicators. We find that our extension is unequivocally the preferred alternative to compute backcasts. In nowcasting and forecasting, our model is able to forecast growth as well as AD and better than several baseline alternatives. Finally, we show that our extension could also be used to infer the US business cycles very precisely.

Keywords

Real-time forecasting Economic indicators Business cycles 

JEL Classification

E32 C22 E27 

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Departamento de Métodos Cuantitativos para la EconomíaFacultad de Economía y Empresa, Universidad de MurciaMurciaSpain
  2. 2.BBVA Research and AQR-IREA Research GroupUniversitat de BarcelonaBarcelonaSpain

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