Predictive Performance of Mixed-Frequency Nowcasting and Forecasting Models (with Application to Philippine Inflation and GDP Growth)

Roberto Mariano and Suleyman Ozmucur

Journal of Quantitative Economics, 2021, vol. 19, issue 1, No 18, 383-400

Abstract: Abstract This paper studies the comparative predictive accuracy of forecasting methods using mixed-frequency data, as applied to nowcasting Philippine inflation, real GDP growth, and other related macroeconomic variables. It focuses on variations of mixed-frequency dynamic latent factor models (DLFM for short) and Mixed Data Sampling (MIDAS) Regression. DLFM is parsimonious and dependent on a much smaller data set that needs to be updated regularly but technically and computationally more complicated, especially when there are mixed-frequency data. On the other hand, MIDAS is data-intensive but computationally more tractable. The analysis is done through a comparison of forecast performance measures (such as mean absolute prediction error) and application of statistical tests of comparative predictive accuracy and tests of forecast encompassing. Results obtained so far indicate that just about every method in the pool of forecasting methods studied performs best in some cases and worst in other cases. Thus, there is no clear winner. Furthermore, combining forecasts from the alternative methods, especially using least squares weights, improves forecast accuracy, and therefore is advocated for use in practice.

Keywords: Nowcasting; Forecasting; Dynamic latent factor model; MIDAS; Principal components; Factor analysis; ARDL; VAR; Elastic net; Combining forecasts (search for similar items in EconPapers)
JEL-codes: C22 C32 C51 C52 C53 C55 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s40953-021-00276-6

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