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Nowcasting German GDP: Foreign factors, financial markets, and model averaging

Journal

International Journal of Forecasting

Subject

Economics

Publishing details

International Journal of Forecasting 2023 Vol 39:1 p 298-313

Authors / Editors

Andreini P;Hasenzagl T;Reichlin L;Senftleben-Konig C;Strohsal T

Biographies

Lucrezia Reichlin

Publication Year

2023

Abstract

This paper develops a nowcasting model for the German economy. The model outperforms a number of alternatives and produces forecasts not only for GDP but also for other key variables. We show that the inclusion of a foreign factor improves the model’s performance, while financial variables do not. Additionally, a comprehensive model averaging exercise reveals that factor extraction in a single model delivers slightly better results than averaging across models. Finally, we estimate a “news” index for the German economy in order to assess the overall performance of the model beyond forecast errors in GDP. The index is constructed as a weighted average of the nowcast errors related to each variable included in the model.

Available on ECCH

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