Nowcasting (economics)

For other uses, see Nowcasting.

Nowcasting is defined as the prediction of the present, the very near future and the very recent past in economics. The term is a contraction for now and forecasting and has been used for a long-time in meteorology. It has recently become popular in economics as standard measures used to assess the state of an economy, e.g., gross domestic product (GDP), are only determined after a long delay, and are even then subject to subsequent revisions. Nowcasting models have been applied in many institutions, in particular Central Banks, and the technique is used routinely to monitor the state of the economy in real time.

Principle

While weather forecasters know weather conditions today and only have to predict the weather tomorrow, economists have to forecast the present and even the recent past. Historically, nowcasting techniques have been based on simplified heuristic approaches. A recent paper by Giannone, Reichlin and Small (2008)[1] has shown that the process of nowcasting can be formalized in a statistical model which produces predictions without the need for informal judgement.

The model exploits information from a large quantity of data series at different frequencies and with different publication lags. The idea is that signals about the direction of change in GDP can be extracted from this large and heterogeneous set of information sources (e.g., jobless figures, industrial orders, the trade balance, etc.) before GDP itself is published. In nowcasting this data is used to compute sequences of current quarter GDP estimates in relation to the real time flow of data releases.

Development

Selected academic research papers show how this technique has developed.[2][3][4][5][6][7][8][9]

Banbura, Giannone and Reichlin (2011)[10] and Marta Banbura, Domenico Giannone, Michele Modugno & Lucrezia Reichlin (2013)[11] provide surveys of the basic methods and more recent refinements.

Nowcasting methods based on social media content (such as Twitter) have been developed to estimate hidden quantities such as the 'mood' of a population or the presence of a flu epidemic.[12][13]

A simple to implement regression-based approach to nowcasting involves mixed-data sampling or MIDAS regressions (see Andreou, Ghysels and Kourtellos (2011)[14]).

References

  1. ↑ Giannone, Domenico; Reichlin, Lucrezia; Small, David (May 2008). "Nowcasting: The real-time informational content of macroeconomic data". Journal of Monetary Economics. Elsevier. 55 (4): 665–676. doi:10.1016/j.jmoneco.2008.05.010. Retrieved 12 June 2015.
  2. ↑ Camacho, Maximo; Perez-Quiros, Gabriel (2010). "Introducing the euro-sting: Short-term indicator of euro area growth". Journal of Applied Econometrics. John Wiley & Sons. 25 (4): 663–694. doi:10.1002/jae.1174. Retrieved 12 June 2015.
  3. ↑ Matheson, Troy D. (January 2010). "An analysis of the informational content of New Zealand data releases: The importance of business opinion surveys". Economic Modelling. Elsevier. 27 (1): 304–314. doi:10.1016/j.econmod.2009.09.010. Retrieved 12 June 2015.
  4. ↑ Evans, Martin D. D. (September 2005). "Where Are We Now? Real-Time Estimates of the Macroeconomy". International Journal of Central Banking. 1 (2). Retrieved 12 June 2015.
  5. ↑ Rünstler, G.; Barhoumi, K.; Benk, S.; Cristadoro, R.; Den Reijer, A.; Jakaitiene, A.; Jelonek, P.; Rua, A.; Ruth, K.; Van Nieuwenhuyze, C. (2009). "Short-term forecasting of GDP using large datasets: a pseudo real-time forecast evaluation exercise". Journal of Forecasting. John Wiley & Sons. 28 (7): 595–611. doi:10.1002/for.1105. Retrieved 12 June 2015.
  6. ↑ Angelini, Elena; Banbura, Marta; Rünstler, Gerhard (2010). "Estimating and forecasting the euro area monthly national accounts from a dynamic factor model". OECD Journal: Journal of Business Cycle Measurement and Analysis. OECD Publishing, CIRET. 1: 7. Retrieved 12 June 2015.
  7. ↑ Domenico, Giannone; Reichlin, Lucrezia; Simonelli, Saverio (23 November 2009). "Is the UK still in recession? We don't think so". Vox. Retrieved 12 June 2015.
  8. ↑ Kajal, Lahiri; Monokroussos, George (2013). "Nowcasting US GDP: The role of ISM business surveys". International Journal of Forecasting. Elsevier. 29 (4): 644–658. doi:10.1016/j.ijforecast.2012.02.010. Retrieved 12 June 2015.
  9. ↑ Antolin-Diaz, Juan; Drechsel, Thomas; Petrella, Ivan (2014). "Following the Trend: Tracking GDP when Long-Run Growth is Uncertain". CEPR Discussion Papers 10272. Retrieved 12 June 2015.
  10. ↑ Banbura, Marta; Giannone, Domenico; Reichlin, Lucrezia (2010). "Nowcasting". In Clements, Michael P.; Hendry, David F. Oxford Handbook on Economic Forecasting. Oxford University Press.
  11. ↑ Banbura, Marta; Giannone, Domenico; Modugno, Michele; Reichlin, Lucrezia (2013). "Chapter 4. Nowcasting and the Real-Time Dataflow". In Elliot, G.; Timmerman, A. Handbook on Economic Forecasting. Elsevier. pp. 195–237. Retrieved 23 June 2015.
  12. ↑ Lansdall‐Welfare, Thomas; Lampos, Vasileios; Cristianini, Nello (August 2012). "Nowcasting the mood of the nation". Significance. 9 (4). Archived from the original on 20 August 2012.
  13. ↑ Lampos, Vasileios; Cristianini, Nello (2012). "Nowcasting Events from the Social Web with Statistical Learning" (PDF). ACM TIST. 3 (4, article number 72). Retrieved 12 June 2015.
  14. ↑ Andreou, Elena & Eric Ghysels & Andros Kourtellos "Forecasting with Mixed-Frequency Data", Oxford Handbook of Economic Forecasting, Michael P. Clements and David F. Hendry (ed.) Chapter 8.

External links

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