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Performance analysis of nowcasting of GDP growth when allowing for conditional heteroscedasticity and non-Gaussianity
Örebro University, Örebro University School of Business. Division of Statistics.ORCID iD: 0000-0002-1488-4703
Örebro University, Örebro University School of Business. Division of Economics.ORCID iD: 0000-0001-8124-328x
Örebro University, Örebro University School of Business. Division of Economics, School of Business, Örebro University, Örebro, Sweden; National Institute of Economic Research, Stockholm, Sweden.ORCID iD: 0000-0002-4840-7649
2022 (English)In: Applied Economics, ISSN 0003-6846, E-ISSN 1466-4283, Vol. 54, no 58, p. 6669-6686Article in journal (Refereed) Published
Abstract [en]

The nowcasting performance of autoregressive models for GDP growth are analysed in a setting where the error term is allowed to be characterized both by conditional heteroscedasticity and non-Gaussianity. Standard, publicly available, quarterly data on GDP growth from 1979 to 2019 for six countries are employed: Australia, Canada, France, Japan, the United Kingdom and the United States. In-sample analysis suggests that when homoscedasticity is assumed, support is provided for non-Gaussian error terms; the estimated degrees of freedom of the t-distribution lie between two and seven for all countries. However, allowing for both conditional heteroscedasticity and t-distributed innovations, results indicate that conditional heteroscedasticity captures the fat-tailed behaviour of the data to a large extent. Results from out-of-sample analysis show that point nowcasts are hardly affected by taking conditional heteroscedasticity and/or non-Gaussianity into account. For the density nowcasts, it is found that accounting for conditional heteroscedasticity leads to improvements for Australia, Canada, Japan, the United Kingdom and the United States; allowing for non-Gaussianity seems less important though. This result is robust to which measure is used for assessing density nowcasting performance.

Place, publisher, year, edition, pages
Routledge, 2022. Vol. 54, no 58, p. 6669-6686
Keywords [en]
GARCH, Kullback-Leibler divergence, non-Gaussianity, probability integral transform
National Category
Economics
Identifiers
URN: urn:nbn:se:oru:diva-99430DOI: 10.1080/00036846.2022.2075823ISI: 000800502000001Scopus ID: 2-s2.0-85131193091OAI: oai:DiVA.org:oru-99430DiVA, id: diva2:1667626
Funder
The Jan Wallander and Tom Hedelius Foundation, P180201Tore Browaldhs stiftelse, W19-0021Available from: 2022-06-10 Created: 2022-06-10 Last updated: 2022-11-23Bibliographically approved

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Javed, FarrukhKiss, TamásÖsterholm, Pär

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