Forecasting regional GDP with factor models: How useful are national and international data?

We assess the contribution of national (country-wide) and international data to the task of forecasting the real GDP of Canadian provinces. Using the targeting predictors approach of Bai and Ng (2008) [Bai, J., Ng, S., 2008. Forecasting economic time series using targeted predictors. Journal of Econ...

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Bibliographic Details
Published in:Economics letters 2013-11, Vol.121 (2), p.267-270
Main Authors: Kopoin, Alexandre, Moran, Kevin, Paré, Jean-Pierre
Format: Article
Language:English
Subjects:
Dynamic factor models
Economic forecasting
Economic models
GDP
Gross Domestic Product
Regional forecasts
Service introduction
Studies
Targeted predictors
Time series
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Summary:We assess the contribution of national (country-wide) and international data to the task of forecasting the real GDP of Canadian provinces. Using the targeting predictors approach of Bai and Ng (2008) [Bai, J., Ng, S., 2008. Forecasting economic time series using targeted predictors. Journal of Econometrics 146, 304–317], we find that larger datasets containing regional, national and international data help improve forecasting accuracy for horizons below the one-year-ahead mark, but that beyond that horizon, relying on provincial data alone produces the best forecasts. These results suggest that shocks originating at the national and international levels are transmitted to Canadian regions and reflected in regional timeseries fairly rapidly. •Can regional forecasts be improved by using national and international data?•We use a targeted factor approach with Canadian data to explore this question.•National and US timeseries can improve short-term regional forecasts.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2013.08.007