Bayesian Stochastic Search for the Best Predictors: Nowcasting GDP Growth
Nikolaus Hautsch, Fuyu Yang · RePEc: Research Papers in Economics · 2014
We propose a Bayesian framework for nowcasting GDP growth in real time. Using vintage data on macroeconomic announcements we set up a state space system connecting latent GDP growth rates to agencies' releases of GDP and other economic indicators. We propose a Gibbs sampling scheme to filter out daily GDP growth rates using all available macroeconomic information. The sample draws from the resulting posterior distri#bution, thereby allowing us to simulate backcasting, nowcasting, and forecasting densities. A stochastic search variable selection procedure yields a data-driven way of selecting the relevant GDP predictors out of a potentially large set of economic indicators.