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Forecasting GDP at the Regional Level with Many Predictors

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  • Robert Lehmann
  • Klaus Wohlrabe

Abstract

In this paper, we assess the accuracy of macroeconomic forecasts at the regional level using a unique 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 including more than 300 international, national and regional indicators. We calculate single–indicator, multi–indicator and pooled forecasts. Our results show that we can significantly increase forecast accuracy compared to an autoregressive benchmark model, both for short- and long-term predictions. Furthermore, our best leading indicators describe the specific regional economic structure better than other indicators.

Suggested Citation

  • Robert Lehmann & Klaus Wohlrabe, 2012. "Forecasting GDP at the Regional Level with Many Predictors," CESifo Working Paper Series 3956, CESifo.
    • Handle: RePEc:ces:ceswps:_3956
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    More about this item

    Keywords

    leading indicators; regional forecasting; forecast evaluation; forecast combination; 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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