Constructing GDP Nowcasting Models Using Alternative Data

Takashi Nakazawa
Additional contact information
Takashi Nakazawa: Bank of Japan

No 22-E-9, Bank of Japan Working Paper Series from Bank of Japan

Abstract: With coronavirus (COVID-19) having a significant impact on economic activity, the existing GDP nowcasting model, using only monthly and quarterly economic data, has become difficult to forecast with high accuracy. In this paper, we attempt to improve the accuracy of GDP nowcasting models by using alternative data that are available more promptly. Specifically, we construct nowcasting models that incorporate sparse estimation by Elastic Net using weekly retail sales data and hundreds of daily Internet search volume data, in addition to conventional monthly economic data. For the model formulation and data selection, we prepare a large number of candidate models using the method of forecast combination, which combines multiple forecasting models, and select "Best models" which minimize the forecast error, including data after the spread of COVID-19. The analysis shows that the use of alternative data significantly improves the forecasting accuracy of the model, especially at the 2-month prior to release of GDP, when the availability of monthly and quarterly economic data are limited.

Keywords: Nowcasting; Alternative Data; Elastic Net; Forecast Combination (search for similar items in EconPapers)
JEL-codes: C52 C53 C55 (search for similar items in EconPapers)
Date: 2022-07-28
New Economics Papers: this item is included in nep-big and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.boj.or.jp/en/research/wps_rev/wps_2022/data/wp22e09.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:wp22e09

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().