Back to the Present: Learning About the Euro Area Through a Now-Casting Model

• Activity Number: 345 - Advances in Macroeconomic Nowcasting and Forecasting: Role of Traditional and Nontraditional Indicators and Big Data
• Type: Topic-Contributed
• Date/Time: Thursday, August 12, 2021 : 10:00 AM to 11:50 AM
• Sponsor: Business and Economic Statistics Section
• Author(s): Danilo Cascaldi-Garcia* and Thiago R.T. Ferreira and Domenico Giannone and Michele Modugno
• Companies: Federal Reserve Board and Federal Reserve Board and Amazon.com and Federal Reserve Board
• Keywords: Now-casting; euro area; dynamic factor models

Abstract

We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries---Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. The model shows that country-specific data is important to now-cast the euro-area aggregate GDP, and vice-versa. The model also shows that soft data, such as confidence surveys, are important for now-casting the euro area because they are both timely and intrinsically informative about GDP growth. Finally, the model provides accurate predictions of economic conditions during the euro area's last three recessions.