Fed paper builds dynamic factor model for nowcasting

Ecuador map

Research published by the Federal Reserve outlines a method of “nowcasting” Ecuadorian GDP using a dynamic factor model, finding the approach can outperform an alternative method.

Manuel Gonzalez-Astudillo and Daniel Baquero set out the model in a recent working paper. They make use of 28 variables of the Ecuadorian macroeconomy to extract common factors that can then be used to forecast growth. Since the forecasts are much more timely than the official releases of growth data, they are known

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