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Real-Time Nowcasting with a Bayesian Mixed Frequency Model with Stochastic Volatility

Andrea Carriero (), Todd Clark and Massimiliano Marcellino

No 9312, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper develops a method for producing current-quarter forecasts of GDP growth with a (possibly large) range of available within-the-quarter monthly observations of economic indicators, such as employment and industrial production, and financial indicators, such as stock prices and interest rates. In light of existing evidence of time variation in the variances of shocks to GDP, we consider versions of the model with both constant variances and stochastic volatility. We also evaluate models with either constant or time-varying regression coefficients. We use Bayesian methods to estimate the model, in order to facilitate providing shrinkage on the (possibly large) set of model parameters and conveniently generate predictive densities. We provide results on the accuracy of nowcasts of real-time GDP growth in the U.S. from 1985 through 2011. In terms of point forecasts, our proposal is comparable to alternative econometric methods and survey forecasts. In addition, it provides reliable density forecasts, for which the stochastic volatility specification is quite useful, while parameter time-variation does not seem to matter.

Keywords: Bayesian methods; forecasting; mixed frequency models; Prediction (search for similar items in EconPapers)
JEL-codes: C22 C53 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for
Date: 2013-01
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Related works:
Journal Article: Realtime nowcasting with a Bayesian mixed frequency model with stochastic volatility (2015) Downloads
Working Paper: Real-time nowcasting with a Bayesian mixed frequency model with stochastic volatility (2012) Downloads
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