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doi
10.26509/frbc-wp-201702

Financial Nowcasts and Their Usefulness in Macroeconomic Forecasting

Flag for USA Federal Reserve Bank of Cleveland on March 17th 2017
Knotek II, Edward S. and Zaman, Saeed
Financial data often contain information that is helpful for macroeconomic forecasting, while multistep forecast accuracy also benefits by incorporating good nowcasts of macroeconomic variables. This paper considers the role of nowcasts of financial variables in making conditional forecasts of real and nominal macroeconomic variables using standard quarterly Bayesian vector autoregressions (BVARs). For nowcasting the quarterly value of a variety of financial variables, we document that the average of the available daily data and a daily random walk forecast to fill in the missing days in the quarter typically outperforms other nowcasting approaches. Using real-time data and out-of-sample forecasting exercises, we find that the inclusion of financial variable nowcasts by themselves generally improves forecast accuracy for macroeconomic variables relative to unconditional forecasts, although we document several exceptions in which current-quarter forecast accuracy worsens with the inclusion of the financial ...

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Cited by 2 other policy documents (1 of them are from other policy sources)
 

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