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Empirical Economics

Erschienen in:

30.11.2019

Nowcasting Finnish real economic activity: a machine learning approach

verfasst von: Paolo Fornaro, Henri Luomaranta

Erschienen in: Empirical Economics | Ausgabe 1/2020

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Abstract

We develop a nowcasting framework, based on microlevel data, to provide faster estimates of the Finnish monthly real economic activity indicator, the Trend Indicator of Output (TIO), and of quarterly GDP. We use firm-level turnovers, which are available shortly after the end of the reference month, and real-time traffic volumes data, to form our set of predictors. We rely on combinations of nowcasts obtained from a range of statistical models and machine learning techniques which are able to handle high-dimensional information sets. The results of our pseudo-real-time analysis indicate that a simple nowcast combination based on these models provides faster estimates of TIO and GDP, without increasing substantially the revision error.

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A description of this indicator is available at http://www.stat.fi/til/ktkk/index_en.html.

In our exercise, we compute both nowcasts (predictions of a variable while the reference period is still ongoing) and backcasts (estimates referring to a period which already ended). We refer to our predictions as nowcasts, to be in line with the literature (see Banbura et al. 2011).

More details on the techniques we use and on the estimation procedure are provided in online appendix.

Alternative estimators of latent factors are presented in Forni et al. (2000) and, more recently, Doz et al. (2011). Bai and Ng (2002) developed a series of information criteria that provide an estimate of the number of static factors r.

The data are available at https://aineistot.vayla.fi/lam/rawdata.

Statistics Finland adjusts monthly TIO figures so that they are consistent with quarterly GDP growth estimates, once the latter become available. The same adjustment is done to quarterly GDP when yearly GDP figures are released. The practical implication of this procedure is the presence of large revisions of historical growth rates at the monthly and quarterly frequency.

In our exercise, this set of models includes 21 specifications, such the factor augmented automated ARIMA, regression splines, tree-based regressions, ridge regressions, support vector machine, k-nearest neighbors, and boosting.

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Titel: Nowcasting Finnish real economic activity: a machine learning approach
verfasst von: Paolo Fornaro
Henri Luomaranta
Publikationsdatum: 30.11.2019
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 1/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-019-01809-y

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