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Forecasting GDP at the Regional Level with Many Predictors

Author

Listed:
  • Lehmann Robert

    (Ifo Institute,Dresden, Germany)

  • Wohlrabe Klaus

    (Ifo Institute,Munich, Germany)

Abstract

In this study, we assess the accuracy of macroeconomic forecasts at the regional level using a large data set at quarterly frequency. We forecast gross domestic product (GDP) for two German states (Free State of Saxony and Baden-Württemberg) and Eastern Germany. We overcome the problem of a ‘data-poor environment’ at the sub-national level by complementing various regional indicators with more than 200 national and international indicators. We calculate single-indicator, multi-indicator, pooled and factor forecasts in a ‘pseudo-real-time’ setting. Our results show that we can significantly increase forecast accuracy compared with an autoregressive benchmark model, both for short- and long-term predictions. Furthermore, regional indicators play a crucial role for forecasting regional GDP.

Suggested Citation

  • Lehmann Robert & Wohlrabe Klaus, 2015. "Forecasting GDP at the Regional Level with Many Predictors," German Economic Review, De Gruyter, vol. 16(2), pages 226-254, May.
    • Handle: RePEc:bpj:germec:v:16:y:2015:i:2:p:226-254
    DOI: 10.1111/geer.12042
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    More about this item

    Keywords

    Regional forecasting; forecast combination; factor models; model confidence set; data-rich environment;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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