MIDAS vs. mixed-frequency VAR: Nowcasting GDP in the Euro Area

Vladimir Kuzin, Massimiliano Marcellino and Christian Schumacher

No ECO2009/32, Economics Working Papers from European University Institute

Abstract: This paper compares the mixed-data sampling (MIDAS) and mixed-frequency VAR (MF-VAR) approaches to model speci.cation in the presence of mixed-frequency data, e.g., monthly and quarterly series. MIDAS leads to parsimonious models based on exponential lag polynomials for the coe¢ cients, whereas MF-VAR does not restrict the dynamics and therefore can su¤er from the curse of dimensionality. But if the restrictions imposed by MIDAS are too stringent, the MF-VAR can perform better. Hence, it is di¢ cult to rank MIDAS and MF-VAR a priori, and their relative ranking is better evaluated empirically. In this paper, we compare their performance in a relevant case for policy making, i.e., nowcasting and forecasting quarterly GDP growth in the euro area, on a monthly basis and using a set of 20 monthly indicators. It turns out that the two approaches are more complementary than substitutes, since MF-VAR tends to perform better for longer horizons, whereas MIDAS for shorter horizons.

Keywords: nowcasting; mixed-frequency data; mixed-frequency VAR; MIDAS (search for similar items in EconPapers)
JEL-codes: E37 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ets, nep-for, nep-mac and nep-pke
Date: 2009
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