Nowcasting Quarterly GDP Dynamics in the Euro Area – The Role of Sentiment Indicators

Paweł Gajewski

doi:10.2478/cer-2014-0011

Authors

Paweł Gajewski University of Łódź, Faculty of Economics and Sociology, Department of Macroeconomics, National Bank of Poland

DOI:

https://doi.org/10.2478/cer-2014-0011

Keywords:

nowcasting, sentiment indicators

Abstract

The paper compares the most closely watched sentiment indicators with respect to their ability to nowcast quarterly GDP dynamics in the Euro Area and its biggest economies. We analyse cross-correlations and out-of-sample forecast errors generated from equations estimated by rolling regressions in fixed-length window. The results show that models employing PMI Composite perform best in the cases of the Euro Area, Germany, France and Italy, whilst Spanish GDP dynamics is best nowcasted using ESI-based models. PMI-based models generate the most accurate nowcasts at the beginning of the quarter, as well as during periods of high volatility of GDP growth rates.

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