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Density Nowcasts and Model Combination: Nowcasting Euro-Area GDP Growth over the 2008–09 Recession

Authors


  • We are grateful to Jennie Castle, Mike Clements, Silvia Lui, Barbara Rossi, Shaun Vahey, an anonymous referee and participants at the ISF June 2010, the Eurostat Colloquium September 2010 and the Deutsche Bundesbank and Ifo Workshop June 2012 for helpful comments. Gaetana Montana's previous affiliation was Eurostat (the Statistical Office of the European Union) at the time of paper submission. The views expressed are those of the author and do not represent those of the European Parliament or Eurostat.

Abstract

Combined density nowcasts for quarterly Euro-area GDP growth are produced based on the real-time performance of component models. Components are distinguished by their use of ‘hard’ and ‘soft’, aggregate and disaggregate, indicators. We consider the accuracy of the density nowcasts as within-quarter indicator data accumulate. We find that the relative utility of ‘soft’ indicators surged during the recession. But as this instability was hard to detect in real-time it helps, when producing density nowcasts unknowing any within-quarter ‘hard’ data, to weight the different indicators equally. On receipt of ‘hard’ data for the second month in the quarter better calibrated densities are obtained by giving a higher weight in the combination to ‘hard’ indicators.

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