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Lehmann, Robert und Wohlrabe, Klaus (14. September 2013): Forecasting GDP at the regional level with many predictors. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2013-13 [PDF, 702kB]

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Abstract

In this paper, we assess the accuracy of macroeconomic forecasts at the regional level using a large data set at quarterly frequency. We forecast gross domestic product (GDP) for two German states (Free State of Saxony and Baden- Württemberg) and Eastern Germany. We overcome the problem of a ’data-poor environment’ at the sub-national level by complementing various regional indicators with more than 200 national and international indicators. We calculate single– indicator, multi–indicator, pooled and factor forecasts in a pseudo real–time setting. Our results show that we can significantly increase forecast accuracy compared to an autoregressive benchmark model, both for short and long term predictions. Furthermore, regional indicators play a crucial role for forecasting regional GDP.

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