Nowcasting World GDP Growth with High-Frequency Data

Abstract

The Covid-19 crisis has shown how high-frequency data can help tracking economic turning points in real-time. Our paper investigates whether high-frequency data can also improve the nowcasting performances for world GDP growth on quarterly or annual basis. To this end, we select a large dataset of 151 monthly and 39 weekly series for 17 advanced and emerging countries representing 68% of world GDP. Our approach builds on a Factor-Augmented MIxed DAta Sampling (FA-MIDAS) which allows us to take advantage of our large database and to combine different frequencies. Models that include weekly data significantly outperforms other models relying on monthly or quarterly indicators, both in-and out-ofsample. Breaking down our sample, we show that models with weekly data have similar nowcasting performances relative to other models during "normal" times but strongly outperform them during "crisis" episodes (2008-2009 and 2020). We finally construct a nowcasting model of annual world GDP growth incorporating weekly data which give timely (one every week) and accurate forecasts (close to IMF and OECD projections, but with a 1 to 3 months lead). Policy-wise, this model can provide an alternative "benchmark" projection for world GDP growth during crisis episodes when sudden swings in the economy make the usual "benchmark" projections (from the IMF or the OECD) rapidly outdated.

Measuring real activity using a weekly economic index

“…2 Since its launch at the end of March 2020, the WEI has inspired several indices taking similar approaches around the world. These include the Deutsche Bundesbank Weekly Activity Index (Eraslan & Götz, 2021), the Swiss State Secretariat for Economic Affairs' index of Weekly Economic Activity (Wegmueller, 2021), the Central Bank of the Republic of Turkey's Weekly Economic Conditions Index for Turkey (Celgin & Gunay, 2020), the Banco de Portugal's Daily Economic Indicator (Lourenco & Rua, 2020), the Banque de France's World GDP Nowcast (Jardet & Meunier, 2020), ING's Weekly Economic Activity Index for the Eurozone (Konings & Spakman, 2021), a Guatemalan Indice Economico Semenal (Leiva, 2020), and the Weekly UHERO Economic Pulse for Hawaii (Fuleky, 2020).…”

The ILO nowcasting model: Using high-frequency data to track the impact of the COVID-19 pandemic on labour markets1

“…The first type of indicator is available during the prepandemic period, prior to 2020Q1. These variables, which include amongst others retail sales, household sentiment and business confidence, purchasing managers index (PMI), and labour market indicators have been commonly used in economic nowcasting, including during the pandemic, [7,8]. The ILO compiled approximately 4'000 time series from various online repositories, 6 roughly three-quarters of them available at the monthly frequency and the rest at the quarterly frequency.…”

“…We take an average of the workplace mobility index and the retail and recreation index as input for the model. 7 Other indices available in this dataset are related to behavioural changes during the pandemic and more indirectly related to economic activity and hence are expected to contain less information about the labour market and are not included in the model. As a proxy for stringency of COVID-19 containment measures taken by governments, we use the COVID-19 Government Response Stringency Index (hereafter "Oxford Stringency Index").…”

Seismonomics: Listening to the Heartbeat of the Economy

“…As also pointed out by recent nowcasting studies (e.g. Jardet & Meunier, 2020), high‐frequency data may provide a timely signal when economic conditions suddenly deteriorate, thus allowing economic surveillance in real‐time. To investigate this, we proceed in two directions.…”