The PRISME model: can disaggregation on the production side help to forecast GDP?

C. Thubin, T. Ferri Re, Eric Monnet, Magali Marx and V. Oung

Working papers from Banque de France

Abstract: Although a forecasting model has very good statistical properties and the mean of the residuals equals zero, it can produce systematic errors during a short period. In the case of regular publications, forecasters want to prevent such a persistence of errors over several periods. For this reason, a safeguard model can be used to inform the forecaster when there is a risk that the standard model (i.e. the best specified model on average) leads to persistent errors over several months or quarters. This paper explains why and how such a safeguard model has been built in order to improve the forecasts of French GDP at the current quarter horizon (nowcasts), which are officially published by the French central bank. The official benchmark model for GDP nowcasts is an aggregated model that relies exclusively on survey in the manufacturing industry. In the long run, this model still has the best performances. On the contrary, the safeguard model is a disaggregated model which features equations for the valued added of 6 sectors. From this example, we provide general remarks on the advantages of disaggregation as well as how such safeguard models can be used in practice.

Keywords: GDP nowcasting; Aggregation; Mixed-frequency data. (search for similar items in EconPapers)
JEL-codes: C52 C53 E37 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016
New Economics Papers: this item is included in nep-for, nep-mac and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:596

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