Using stochastic hierarchical aggregation constraints to nowcast regional economic aggregates
Koop, Gary and McIntyre, Stuart and Mitchell, James and Poon, Aubrey (2022) Using stochastic hierarchical aggregation constraints to nowcast regional economic aggregates. International Journal of Forecasting. ISSN 0169-2070 (In Press) (https://doi.org/10.1016/j.ijforecast.2022.04.002)
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Abstract
Recent decades have seen advances in using econometric methods to produce more timely and higher frequency estimates of economic activity at the national level, enabling better tracking of the economy in real-time. These advances have not generally been replicated at the sub-national level, likely because of the empirical challenges that nowcasting at a regional level presents, notably, the short time series of available data, changes in data frequency over time, and the hierarchical structure of the data. This paper develops a mixed-frequency Bayesian VAR model to address common features of the regional nowcasting context, using an application to regional productivity in the UK. We evaluate the contribution that different features of our model provide to the accuracy of point and density nowcasts, in particular, the role of hierarchical aggregation constraints. We show that these aggregation constraints, imposed in stochastic form, play a crucial role in delivering improved regional nowcasts; they prove more important than adding region-specific predictors when the equivalent national data are known, but not when this aggregate is unknown.
ORCID iDs
Koop, Gary


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Item type: Article ID code: 80196 Dates: DateEvent11 April 2022Published11 April 2022AcceptedKeywords: regional data, mixed frequency, nowcasting, Bayesian methods, real-time data, vector autoregressions, Regional economics. Space in economics, Business and International Management Subjects: Social Sciences > Communities. Classes. Races > Regional economics. Space in economics Department: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 13 Apr 2022 15:20 Last modified: 23 Mar 2023 02:22 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/80196