MICA-BBVA: A factor model of economic and financial indicators for short-term GDP forecasting

In this paper we extend the Stock and Watson's (Leading economic indicators, new approaches and forecasting records, 1991) single-index dynamic factor model in an econometric framework that has the advantage of combining information from real and financial indicators published at different freq...

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Bibliographic Details
Published in:SERIEs : journal of the Spanish Economic Association 2012-12, Vol.3 (4), p.475-497
Main Authors: Camacho, Máximo, Doménech, Rafael
Format: Article
Language:English
Subjects:
Business cycles
Economic indicators
Economic models
Economic Policy
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Gesamtwirtschaftliche Produktion
Konjunktur
Microeconomics
Original Article
output growth
Prognoseverfahren
Public Finance
Real time
short-term forecasting
Spanien
Studies
Wirtschaftsindikator
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Summary:In this paper we extend the Stock and Watson's (Leading economic indicators, new approaches and forecasting records, 1991) single-index dynamic factor model in an econometric framework that has the advantage of combining information from real and financial indicators published at different frequencies and delays with respect to the period to which they refer. We find that the common factor reflects the behavior of the Spanish business cycle well.We also show that financial indicators are useful for forecasting output growth, particularly when certain financial variables lead the common factor. Finally, we provide a simulated real-time exercise and prove that the model is a very useful tool for the short-term analysis of the Spanish Economy.
ISSN:1869-4195
1869-4187
1869-4195
DOI:10.1007/s13209-011-0078-z