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New Eurocoin: Tracking Economic Growth in Real Time

Author

Listed:
  • Filippo Altissimo

    (Brevan Howard Asset Management)

  • Riccardo Cristadoro

    (Banca d'Italia)

  • Mario Forni

    (Universit� di Modena)

  • Marco Lippi

    (Universit� La Sapienza di Roma)

  • Giovanni Veronese

    (Banca d'Italia)

Abstract

This paper presents ideas and methods underlying the construction of an indicator that tracks the euro area GDP growth, but, unlike GDP growth, (i) is updated monthly and almost in real time; (ii) is free from hort-run dynamics. Removal of short-run dynamics from a time series, to isolate the mediumlong-run component, can be obtained by a band-pass filter. However, it is well known that band-pass filters, being two-sided, perform very poorly at the end of the sample. New Eurocoin is an estimator of the medium- long-run component of the GDP that only uses contemporaneous values of a large panel of macroeconomic time series, so that no end-of-sample deterioration occurs. Moreover, as our dataset is monthly, New Eurocoin can be updated each month and with a very short delay. Our method is based on generalized principal components that are designed to use leading variables in the dataset as proxies for future values of the GDP growth. As the medium- long-run component of the GDP is observable, although with delay, the performance of New Eurocoin at the end of the sample can be measured.

Suggested Citation

  • Filippo Altissimo & Riccardo Cristadoro & Mario Forni & Marco Lippi & Giovanni Veronese, 2007. "New Eurocoin: Tracking Economic Growth in Real Time," Temi di discussione (Economic working papers) 631, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_631_07
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    More about this item

    Keywords

    coincident indicator; band-pass filter; large-dataset factor models; generalized principal components;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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