An application of dynamic factor models to nowcast regional economic activity in Spain

María Gil (maria.gil@bde.es), Danilo Leiva-Leon (danilo.leiva-leon@bos.frb.org), Javier Pérez and Alberto Urtasun
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María Gil: Banco de España

No 1904, Occasional Papers from Banco de España

Abstract: The goal of this paper is to propose a model to produce nowcasts of GDP growth of Spanish regions, by means of dynamic factor models. This framework is capable to incorporate in a parsimonious way the relevant information available at the time that each forecast is made. We employ a Bayesian perspective to provide robust estimation of all the ingredients involved in the model. Accordingly, we introduce the Bayesian Factor model for Regions (BayFaR), which allows for the inclusion of missing data and combines quarterly data on regional real output growth (taken from the database of the AIReF and from the individual regional statistics institutes, when available) and monthly information associated to indicators of regional real activity. We apply the BayFaR to nowcast the GDP growth of the four largest regions of Spain, and illustrate the real-time nowcasting performance of the proposed framework for each case. We also apply the model to nowcast Spanish GDP in order to be able to assess the relative growth of each region.

Keywords: regional activity; nowcasting; dynamic factor model (search for similar items in EconPapers)
JEL-codes: C32 E37 R13 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-03
New Economics Papers: this item is included in nep-eec, nep-ets, nep-for, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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