Real‐Time Nowcasting of GDP: A Factor Model vs. Professional Forecasters

We perform a fully real‐time nowcasting (forecasting) exercise of US GDP growth using Giannone et al.'s (2008) factor model framework. To this end, we have constructed a real‐time database of vintages from 1997 to 2010 for a panel of variables, enabling us to reproduce, for any given day in that range, the exact information that was available to a real‐time forecaster. We track the daily evolution of the model performance along the real‐time data flow and find that the precision of the nowcasts increases with information releases and the model fares well relative to the Survey of Professional Forecasters (SPF).