Nowcasting German GDP: Foreign factors, financial markets, and model averaging

Andreini, P, Hasenzagl, T, Reichlin, L, Senftleben-Konig, C and Strohsal, T (2021) Nowcasting German GDP: Foreign factors, financial markets, and model averaging. International Journal of Forecasting. ISSN 0169-2070 (In Press)

Abstract

This paper develops a nowcasting model for the German economy. The model outperforms a number of alternatives and produces forecasts not only for GDP but also for other key variables. We show that the inclusion of a foreign factor improves the model’s performance, while financial variables do not. Additionally, a comprehensive model averaging exercise reveals that factor extraction in a single model delivers slightly better results than averaging across models. Finally, we estimate a “news” index for the German economy in order to assess the overall performance of the model beyond forecast errors in GDP. The index is constructed as a weighted average of the nowcast errors related to each variable included in the model.

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Item Type: Article
Subject Areas: Economics
Date Deposited: 10 Jan 2022 20:48
Last Modified: 12 Jan 2022 14:43
URI: https://lbsresearch.london.edu/id/eprint/2194
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