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Real-time nowcasting the US output gap: Singular spectrum analysis at work
Miguel de Carvalho
C50 - General
E32 - Business Fluctuations; Cycles
We explore a new approach for nowcasting the output gap based on singular spectrum analysis. Resorting to real-time vintages, a recursive exercise is conducted so to assess the real-time reliability of our approach for nowcasting the US output gap, in comparison with some well-known benchmark models. For our applied setting of interest, the preferred version of our approach consists of a two-channel singular spectrum analysis, where we use a Fisher g test to infer which components, within the standard business cycle range, should be included in the grouping step. We find that singular spectrum analysis provides a reliable assessment of the cyclical position of the economy in real-time, with the two-channel approach outperforming substantially the univariate counterpart.