OECD Economics Department Working Papers

ISSN: 
1815-1973 (online)
http://dx.doi.org/10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Forecasting GDP during and after the Great Recession

A contest between small-scale bridge and large-scale dynamic factor models You or your institution have access to this content

English
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Author(s):
Patrice Ollivaud1, Pierre-Alain Pionnier1, Elena Rusticelli1, Cyrille Schwellnus1, Seung-Hee Koh1
Author Affiliations
  • 1: OECD, France

26 July 2016
Bibliographic information
No.:
1313
Pages:
35
http://dx.doi.org/10.1787/5jlv2jj4mw40-en

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This paper compares the short-term forecasting performance of state-of-the-art large-scale dynamic factor models (DFMs) and the small-scale bridge models routinely used at the OECD. Pseudo-real time out-of-sample forecasts for France, Germany, Italy, Japan, United Kingdom and the United States during and after the Great Recession (2008-2014) suggest that large-scale DFMs are not systematically more accurate than small-scale bridge models, especially at short forecast horizons. Moreover, DFM parameters appear to be highly unstable during the Great Recession (2008-2009), making forecast revisions between successive vintages difficult to explain as revisions cannot be fully attributed to news on specific groups of indicators. The implication for OECD forecasting practice is that there would be no gain from switching from the current small-scale bridge models to large-scale DFMs.
Keywords:
big data, nowcasting, dynamic factor models, bridge models
JEL Classification:
  • C53: Mathematical and Quantitative Methods / Econometric Modeling / Forecasting and Prediction Methods ; Simulation Methods
  • E37: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Forecasting and Simulation: Models and Applications
 
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