Working Paper: CEPR ID: DP7007
Authors: Cecilia Frale; Massimiliano Marcellino; Gian Luigi Mazzi; Tommaso Proietti
Abstract: A continuous monitoring of the evolution of the economy is fundamental for the decisions of public and private decision makers. This paper proposes a new monthly indicator of the euro area real Gross Domestic Product (GDP), with several original features. First, it considers both the output side (six branches of the NACE classification) and the expenditure side (the main GDP components) and combines the two estimates with optimal weights reflecting their relative precision. Second, the indicator is based on information at both the monthly and quarterly level, modelled with a dynamic factor specification cast in state-space form. Third, since estimation of the multivariate dynamic factor model can be numerically complex, computational efficiency is achieved by implementing univariate filtering and smoothing procedures. Finally, special attention is paid to chain-linking and its implications, via a multistep procedure that exploits the additivity of the volume measures expressed at the prices of the previous year.
Keywords: chainlinking; dynamic factor models; euro area GDP; Kalman filter and smoother; multivariate state space models; temporal disaggregation
JEL Codes: C53; E32; E37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monthly indicators (e.g., industrial production, retail turnover) (C43) | GDP estimates (E20) |
| common factor from monthly indicators (C43) | changes in GDP (E20) |
| GDP estimates (output side and expenditure side) (E20) | combined estimate (C13) |
| monthly estimates of GDP (E01) | reliability (L15) |
| new information (D83) | revisions of estimates (E01) |