The role of targeted predictors for nowcasting GDP with bridge models: Application to the Euro area

Tobias Kitlinski and Philipp an de Meulen

No 559, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Using factor models, it has recently been shown that a pre-selection of indicators improves GDP forecasts in the very short-term. The aim of this paper is to adopt this research to the methodology of bridge models in combination with pooling approaches. Focusing on Euro Area GDP between 2005 and 2013, we find that a selection of targeted predictors by means of soft- and hard-threshold algorithms improves the forecasting performance, especially during periods of economic crisis. While a critical number of indicators are needed to include all relevant information, adding additional indicators has a negative effect on forecasting performance, all the more, if the set of indicators becomes unbalanced.

Keywords: Forecasting; bridge equations; pooling of forecasts (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eec, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:559

DOI: 10.4419/86788640

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