Type: Working Paper
MIDAS vs. Mixed-frequency VAR: Nowcasting GDP in the Euro Area
Working Paper, EUI ECO, 2009/32
KUZIN, Vladimir, MARCELLINO, Massimiliano, SCHUMACHER, Christian, MIDAS vs. Mixed-frequency VAR: Nowcasting GDP in the Euro Area, EUI ECO, 2009/32 - https://hdl.handle.net/1814/12382
Retrieved from Cadmus, EUI Research Repository
This paper compares the mixed-data sampling (MIDAS) and mixed-frequency VAR (MF- VAR) approaches to model speci cation in the presence of mixed-frequency data, e.g., monthly and quarterly series. MIDAS leads to parsimonious models based on exponential lag polynomials for the coe¢ cients, whereas MF-VAR does not restrict the dynamics and therefore can su¤er from the curse of dimensionality. But if the restrictions imposed by MIDAS are too stringent, the MF-VAR can perform better. Hence, it is di¢ cult to rank MIDAS and MF-VAR a priori, and their relative ranking is better evaluated empirically. In this paper, we compare their performance in a relevant case for policy making, i.e., nowcasting and forecasting quarterly GDP growth in the euro area, on a monthly basis and using a set of 20 monthly indicators. It turns out that the two approaches are more complementary than substitutes, since MF-VAR tends to perform better for longer horizons, whereas MIDAS for shorter horizons.
Cadmus permanent link: https://hdl.handle.net/1814/12382
Series/Number: EUI ECO; 2009/32