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Nowcasting Finnish GDP growth using financial variables: a MIDAS approach

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  • Laine, Olli-Matti
  • Lindblad, Annika

Abstract

We analyse the performance of financial market variables in nowcasting Finnish quarterly GDP growth. Especially, we assess if prediction accuracy is affected by the sampling frequency of the financial variables. Therefore, we apply MIDAS models that allow us to forecast quarterly GDP growth using monthly or daily data without temporal aggregation in a parsimonious way. Our results show that financial market data nowcasts Finnish GDP growth relatively well. When it comes to individual variables, ratios like average price-to-earnings, average price-to-book or average dividend yield track GDP growth well. Our results suggest that the sampling frequency of financial market variables is not crucial: the forecasting accuracy of daily, monthly and quarterly data is similar.

Suggested Citation

  • Laine, Olli-Matti & Lindblad, Annika, 2020. "Nowcasting Finnish GDP growth using financial variables: a MIDAS approach," BoF Economics Review 4/2020, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:42020
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    References listed on IDEAS

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    More about this item

    Keywords

    MIDAS; Nowcasting; Financial markets; GDP;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G00 - Financial Economics - - General - - - General
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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