Forecasting economic activity with higher frequency targeted predictors

Guido Bulligan (), Massimiliano Marcellino and Fabrizio Venditti
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Guido Bulligan: Bank of Italy

No 847, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper we explore the performance of bridge and factor models in forecasting quarterly aggregates in the very short-term subject to a pre-selection of monthly indicators. Starting from a large information set, we select a subset of targeted predictors using data reduction techniques as in Bai and Ng (2008). We then compare a Diffusion Index forecasting model as in Stock and Watson (2002), with a Bridge model specified with an automated General-To-Specific routine. We apply these techniques to forecasting Italian GDP growth and its main components from the demand side and find that Bridge models outperform naive forecasts and compare favorably against factor models. Results for France, Germany, Spain and the euro area confirm these findings.

Keywords: short-term GDP forecast; factor models; bridge models; General To Specific (search for similar items in EconPapers)
JEL-codes: C52 C53 E37 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-ets and nep-for
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_847_12

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