Nowcasting and forecasting GDP growth with machine-learning sentiment indicators

Oscar Claveria, Enric Monte () and Salvador Torra ()
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Enric Monte: Polytechnic University of Catalunya
Salvador Torra: Riskcenter-IREA, University of Barcelona

No 202101, AQR Working Papers from University of Barcelona, Regional Quantitative Analysis Group

Abstract: We apply the two-step machine-learning method proposed by Claveria et al. (2021) to generate country-specific sentiment indicators that provide estimates of year-on-year GDP growth rates. In the first step, by means of genetic programming, business and consumer expectations are evolved to derive sentiment indicators for 19 European economies. In the second step, the sentiment indicators are iteratively re-computed and combined each period to forecast yearly growth rates. To assess the performance of the proposed approach, we have designed two out-of-sample experiments: a nowcasting exercise in which we recursively generate estimates of GDP at the end of each quarter using the latest survey data available, and an iterative forecasting exercise for different forecast horizons We found that forecasts generated with the sentiment indicators outperform those obtained with time series models. These results show the potential of the methodology as a predictive tool.

Keywords: Forecasting; Economic growth; Business and consumer expectations; Symbolic regression; Evolutionary algorithms; Genetic programming. JEL classification: C51; C55; C63; C83; C93 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2021-02, Revised 2021-02
New Economics Papers: this item is included in nep-big, nep-cmp, nep-cwa, nep-eec and nep-for
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http://www.ub.edu/irea/working_papers/2021/202103.pdf (application/pdf)

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Working Paper: Nowcasting and forecasting GDP growth with machine-learning sentiment indicators (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:aqr:wpaper:202101

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