Back Matter

VIII. References

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  • Giannone, Domenico, Lucrezia Reichlin, and David Small, 2008, “Nowcasting: The real-time informational content of macroeconomic data,Journal of Monetary Economics, Elsevier, Vol. 55(4), pages 665676, May.

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1

The authors would like to thank Michal Andrle, Gregorio Impavido, Helene Poirson Ward, Mika Kortelainen, Ernesto Ramirez, Antonio Spilimbergo, Alexander Tieman, Ivanna Vladkova Hollar, and Kevin Wiseman for useful comments.

2

While Turkey’s trade links with Europe have been traditionally large and important, Turkey has various trading partners and their relative share change over time. For example in 2013 Iraq was the Turkey’s 2nd biggest export market.

3

For example, for an inflation forecasting exercise we need different indicators than a GDP forecasting case.

4

Hard data such as industrial production or imports carries a lot of information about the GDP growth in Turkey (See Akkoyun and Gunay, 2012).

5

One way of comparing the explanatory power of various indicators is to check mean square forecast error.

6

Note that GDP is quarterly and the rest of the variables are monthly.

7

Giannone et. al (2015) also place GDP as the first variables. We have done some robustness check by changing the ordering of the variables in the domestic block and we found that the main finding of the paper stays qualitatively the same.

8

This identification will not be applicable for US economy since it is a large open economy with complex links to the global economy.

9

With large declines in portfolio investment, gross capital inflows to central and southeastern Europe turned sharply negative in the third quarter of 2013 and dropped substantially for Turkey (Figure 2.4, WEO April 2014, page 57).

10

When US economy is growing, foreign investors’ home bias increases; as a result FDI to emerging economies shrinks, which further affects credit dynamic in domestic economy. The increase in US corporate risk spread has an opposite effect.

11

This is mainly due to the methodology used by Turkish Statistical Institute (TurkStat) to construct the Real GDP, which assigns a high weight on IP.

12

We use final estimate for the year instead of initial estimates.

IX. Appendix

A. Data

X. Structural Forecast Error Variance Decompositions

Figure 7, below, shows the individual variables’ structural forecast error variance decompositions. The rows illustrate the indicators, and the columns illustrate the shocks. Each chart shows the relative contributions of residuals. By investigating the variance decomposition of the Real GDP on the top row, one can highlight the important role of global risk factors, captured by the price of oil, and US investment risks, captured by the spread, through the capital flows and foreign financing channels.

XI. Nowcasting in Practice

In this section, we give an example of how we use monthly information in producing a nowcast of GDP within each quarter. We assume that the Turkish GDP is available up to 2014Q2; this exercise aims at computing a point forecast of 2014Q3. The domestic variables, except short-term interest rates, are available up to 2014M7, while external variables are available up to 2014M8. As new monthly information is published, we update our estimate of the variance-covariance matrix and update the nowcasts. Our results support the findings in the literature regarding the importance of both IP and imports as leading indicators of Turkish aggregate output. In addition, we find that loans to the private sector have useful information as a leading indicator. We are using a conditional forecast to parsimoniously combine high frequency information in nowcasting real activities.

Table 5.

Calendar of Turkey’s GDP Releases

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Therefore, nowcasting will be implemented using available information based on Figure 8. Conditional forecasting on M1 includes information of first month of quarter for all the monthly variables. Conditional forecasting on M2 includes information of second month of quarter only for short-term interest rate and external variables in the model.

Figure 8.
Figure 8.

GDP Growth (% YoY) and Nowcast

Citation: IMF Working Papers 2015, 269; 10.5089/9781513598987.001.A999

How External Factors Affect Domestic Economy: Nowcasting an Emerging Market
Author: Mr. Serhat Solmaz and Marzie Taheri Sanjani