A Comparison of Mixed Frequency Approaches for Modelling Euro Area Macroeconomic Variables

Claudia Foroni and Massimiliano Marcellino

No ECO2012/07, Economics Working Papers from European University Institute

Abstract: Forecast models that take into account unbalanced datasets have recently attracted substantial attention. In this paper, we focus on different methods pro- posed so far in the literature to deal with mixed-frequency and ragged-edge datasets: bridge equations, mixed-data sampling (MIDAS), and mixed-frequency (MF) models. We discuss their performance on now- and forecasting the quarterly growth rate of Euro area GDP and its components, using a very large set of monthly indicators taken from Eurostat dataset of Principal European Economic Indicators (PEEI). We both investigate the behavior of single indicator models and combine first the forecasts within each class of models and then the information in the dataset by means of factor models, in a pseudo real-time framework. Anticipating some of the results, MIDAS without an AR component performs worse than the corresponding approach which incorporates it, and MF-VAR seems to outperform the MIDAS approach only at longer horizons. Bridge equations have overall a good performance. Pooling many indicators within each class of models is overall superior to most of the single indicator models. Pooling information with the use of factor models gives even better results, at least at short horizons. A battery of robustness checks high- lights the importance of monthly information during the crisis more than in stable periods. Extending the analysis to a real-time context highlights that revisions do not influence substantially the results.

Keywords: mixed-frequency data; mixed-frequency VAR; MIDAS; factor models; nowcasting; forecasting (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eec, nep-ets, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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