MIDAS vs. mixed-frequency VAR: Nowcasting GDP in the Euro Area

Christian Schumacher, Massimiliano Marcellino and Vladimir Kuzin

No 7445, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper compares the mixed-data sampling (MIDAS) and mixed-frequency VAR (MF-VAR) approaches to model specification 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 coefficients, whereas MF-VAR does not restrict the dynamics and therefore can suffer from the curse of dimensionality. But if the restrictions imposed by MIDAS are too stringent, the MF-VAR can perform better. Hence, it is difficult 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.

Keywords: Euro area growth; Midas; Mixed-frequency data; Mixed-frequency var; Nowcasting (search for similar items in EconPapers)
JEL-codes: C53 E37 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-eec, nep-ets and nep-for
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Citations: View citations in EconPapers (23)

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Related works:
Journal Article: MIDAS vs. mixed-frequency VAR: Nowcasting GDP in the euro area (2011)
Journal Article: MIDAS vs. mixed-frequency VAR: Nowcasting GDP in the euro area (2011)
Working Paper: MIDAS vs. mixed-frequency VAR: Nowcasting GDP in the Euro Area (2009)
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