Filtering German Economic Conditions from a Large Dataset: The New DIW Economic Barometer

Paul Viefers, Ferdinand Fichtner, Simon Junker and Maximilian Podstawski

No 1414, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper presents a revised version of the DIW Economic Barometer, the business cycle index of the German Institute for Economic Research (DIW Berlin). As in earlier versions, we put forward a factor model on a monthly frequency to filter the latent state of the aggregate economy. In the new version, the resulting business cycle factor is based on more than 300 variables. The main methodological changes relate to (i) the estimation procedure, (ii) treatment of publication lags and missings, and (iii) the decomposition of the index into contributions from different sectors of the economy. Alongside several practical advantages, we also document a better historical nowcasting performance of the new index.

Keywords: Business Cycles; Nowcasting; Dynamic Factor Models; Principal Components (search for similar items in EconPapers)
JEL-codes: E32 E37 (search for similar items in EconPapers)
Pages: 24 p.
Date: 2014
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1414

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