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Nowcasting GDP Growth Using a Coincident Economic Indicator for India

Soumya Bhadury, Saurabh Ghosh and Pankaj Kumar

MPRA Paper from University Library of Munich, Germany

Abstract: In India, the first official estimate of quarterly GDP is released approximately 7-8 weeks after the end of the reference quarter. To provide an early estimate of the current quarter GDP growth, we construct a Coincident Economic Indicator for India (CEII) using 6, 9 and 12 high-frequency indicators. These indicators represent various sectors, display high contemporaneous correlation with GDP, and track GDP turning points well. While CEII-6 includes domestic economic activity indicators, CEII-9 combines indicators on trade and services along with the indicators used in CEII-6. Finally, CEII-12 adds financial indicators to the indicators used in CEII-9. In addition to the conventional economic activity indicators, we include a financial block in CEII-12 to reflect the growing influence of the financial sector on economic activity. CEII is estimated using a dynamic factor model to extract a common trend underlying the highfrequency indicators. We use the underlying trend to gauge the state of the economy and to identify sectors contributing to economic fluctuations. Further, CEIIs are used to nowcast GDP growth, which closely tracks the actual GDP growth, both in-sample and out-of-sample.

Keywords: Nowcast; Gross Domestic Product; Economic Cycle; Dynamic Factor Model; Turning Point Analysis; Jagged Edge Data (search for similar items in EconPapers)
JEL-codes: C32 C51 C53 (search for similar items in EconPapers)
Date: 2019-09-12
New Economics Papers: this item is included in nep-fdg and nep-mac
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