Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247601 
Year of Publication: 
2021
Citation: 
[Journal:] Econometrics [ISSN:] 2225-1146 [Volume:] 9 [Issue:] 1 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-25
Publisher: 
MDPI, Basel
Abstract: 
We assess the forecasting performance of the nowcasting model developed at the New York FED. We show that the observation regarding a striking difference in the model's predictive ability across business cycle phases made earlier in the literature also applies here. During expansions, the nowcasting model forecasts at best are at least as good as the historical mean model, whereas during the recessionary periods, there are very substantial gains corresponding in the reduction in MSFE of about 90% relative to the benchmark model. We show how the asymmetry in the relative forecasting performance can be verified by the use of such recursive measures of relative forecast accuracy as Cumulated Sum of Squared Forecast Error Difference (CSSFED) and Recursive Relative Mean Squared Forecast Error (based on Rearranged observations) (R2MSFE(+R)). Ignoring these asymmetries results in a biased judgement of the relative forecasting performance of the competing models over a sample as a whole, as well as during economic expansions, when the forecasting accuracy of a more sophisticated model relative to naive benchmark models tends to be overstated. Hence, care needs to be exercised when ranking several models by their forecasting performance without taking into consideration various states of the economy.
Subjects: 
COVID-19
nowcasts
real-time data
US GDP
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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