Nowcasting Finnish GDP growth using financial variables: a MIDAS approach

Olli-Matti Laine and Annika Lindblad

No 4/2020, BoF Economics Review from Bank of Finland

Abstract: We analyse the performance of financial market variables in nowcasting Finnish quarterly GDP growth. Especially, we assess if prediction accuracy is affected by the sampling frequency of the financial variables. Therefore, we apply MIDAS models that allow us to forecast quarterly GDP growth using monthly or daily data without temporal aggregation in a parsimonious way. Our results show that financial market data nowcasts Finnish GDP growth relatively well. When it comes to individual variables, ratios like average price-to-earnings, average price-to-book or average dividend yield track GDP growth well. Our results suggest that the sampling frequency of financial market variables is not crucial: the forecasting accuracy of daily, monthly and quarterly data is similar.

Keywords: MIDAS; Nowcasting; Financial markets; GDP (search for similar items in EconPapers)
JEL-codes: E37 E44 G00 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-eec, nep-ets and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofecr:42020

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