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ISSN
1725-2806 (online) EU Catalogue NoQB-AR-13-061-EN-N (online)Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors.
Lucrezia ReichlinLondon Business School and CEPR; e-mail: lreichlin@london.edu
AbstractThe term now-casting is a contraction for now and forecasting and has been used for a long-time in meteorology and recently also in economics. In this paper we survey recent developments in economic now-casting with special focus on those models that formalize key features of how market participants and policy makers read macroeconomic data releases in real time, which involves: monitoring many data, forming expectations about them and revising the assessment on the state of the economy whenever realizations diverge sizeably from those expectations. (Prepared for G. Elliott and A. Timmermann, eds., Handbook of Economic Forecasting, Volume 2, Elsevier-North Holland).
Keywords
Non-technical summaryNow-casting is defined as the prediction of the present, the very near future and the very recent past. The term is a contraction for now and forecasting and has been used for a long-time in meteorology and recently also in economics. Now-casting is relevant in economics because key statistics on the present state of the economy are available with a significant delay. This is particularly true for those collected on a quarterly basis, with Gross Domestic Product (GDP) being a prominent example. For instance, the first official estimate of GDP in the United States (US) or in the United Kingdom is published approximately one month after the end of the reference quarter. In the euro area the corresponding publication lag is 2-3 weeks longer. Now-casting can also be meaningfully applied to other target variables revealing particular aspects of the state of the economy and thereby followed closely by markets. An example is labor market variables.The basic principle of now-casting is the exploitation of the information which is published early and possibly at higher frequencies than the target variable of interest in order to obtain an 'early estimate' before the official figure becomes available. If the focus is on tracking GDP, one may look at its expenditure components, like for example personal consumption, which for the US is available at a monthly frequency, or variables related to the production side such as industry output. In addition, one may consider information contained in surveys or in forward looking indicators such as financial variables. The idea here is that both 'hard' information like industrial production and 'soft' information like sur...
