Real-time forecasting US GDP from small-scale factor models
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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.
KeywordsReal-time forecasting Economic indicators Business cycles
JEL ClassificationE32 C22 E27
We would like to thank R. Domenech, N. Karp, H. Danis, the editor, and two anonymous referees for their helpful comments. M. Camacho would like to thank CICYT (ECO2010-19830) for their financial support. All the remaining errors are our own responsibility.
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