Nowcasting, Business Cycle Dating and the Interpretation of New Information when Real-Time Data are Available

Kevin Lee (), Nils Olekalns and Kalvinder Shields

No 7426, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A canonical model is described which reflects the real-time informational context of decision-making. Comparisons are drawn with ?conventional? models that incorrectly omit market-informed insights on future macroeconomic conditions and inappropriately incorporate information that was not available at the time. It is argued that conventional models are misspecified and misinterpret news but that these deficiencies will not be exposed either by diagnostic tests applied to the conventional models or by typical impulse response analyses. This is demonstrated through an analysis of quarterly US data 1968q4-2008q4. However, estimated real-time models considerably improve out-ofsample forecasting performance, provide more accurate ?nowcasts? of the current state of the macroeconomy and provide more timely indicators of the business cycle. The point is illustrated through an analysis of the US recessions of 1990q3-1991q2 and 2001q1-2001q4 and the most recent experiences of 2008.

Keywords: Structural modelling; Real-time data; Nowcasting; Business cycles (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-cba, nep-for and nep-mac
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Citations: View citations in EconPapers (3)

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Working Paper: Nowcasting, Business Cycle Dating and the Interpretation of New Information when Real Time Data are Available (2008)
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