MONTHLY GDP FORECASTING USING BRIDGE MODELS: APPLICATION FOR THE FRENCH ECONOMY

Authors


Bertrand Pluyaud, Banque de France, DGEI–DAMEP–DIACONJ, 31 rue Croix des Petits Champs, 75049 Paris cedex 01, France. Tel.: +33 1 42 92 51 82; Email: bertrand.pluyaud@banque-france.fr.

ABSTRACT

This paper presents a model to predict French gross domestic product (GDP) quarterly growth rate. The model is designed to be used on a monthly basis by integrating monthly economic information through bridge models, for both supply and demand sides, allowing thus economic interpretations. For each GDP component, bridge equations are specified by using a general-to-specific approach implemented in an automated way by Hoover and Perez and improved by Krolzig and Hendry. This approach allows to select explanatory variables among a large data set of hard and soft data. A rolling forecast study is carried out to assess the forecasting performance in the prediction of aggregated GDP, by taking publication lags into account in order to run pseudo real-time forecasts. It turns out that the model outperforms benchmark models. The results show that changing the set of equations over the quarter is superior to keeping the same equations over time. In addition, GDP growth seems to be more precisely predicted from a supply-side approach rather than a demand-side approach.

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