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Mixed-frequency approaches to nowcasting GDP: An application to Japan

Kyosuke Chikamatsu, Naohisa Hirakata (), Yosuke Kido and Kazuki Otaka

Japan and the World Economy, 2021, vol. 57, issue C

Abstract: In this paper, we discuss the approaches to nowcasting Japan’s GDP quarterly growth rates, comparing a variety of mixed frequency approaches including a bridge equation approach, Mixed-Data Sampling (MIDAS) and factor-augmented version of these approaches. In doing so, we examine the usefulness of a novel sparse principal component analysis (SPCA) approach in extracting factors from the dataset. We also discuss the usefulness of forecast combination, considering various ways to combine forecasts from models and surveys. Our findings are summarized as follows. First, some of the mixed frequency models discussed in this paper record out-of-sample performance superior to a naïve constant growth model. Second, albeit small, the SPCA approach of extracting factors improves predictive power compared with traditional principal component approach. Furthermore, we find that there is a gain from combining model forecasts and professional survey forecasts.

Keywords: Nowcasting; Forecast combination; Bridge model; Mixed-Data Sampling (MIDAS); Sparse principal component analysis (SPCA) (search for similar items in EconPapers)
JEL-codes: C53 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.japwor.2021.101056

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