Paving the way for better economic forecasting
Economic data is available at different frequencies. For example, data from financial markets come on a daily basis, while economic data are often reported monthly or quarterly. When data available at different frequencies are subjected to empirical analysis through traditional methods information is often lost, leading to an inaccurate depiction of the situation. Now, an EU-funded project called 'The econometric analysis of mixed frequency data and its use in policy making' (MIDAS) has come up with a method improving the analysis of this mixed data. Called MIDAS regressions, one of its most important applications is providing better forecasts of the economy, which the project calls 'nowcasts'. Nowcasts make period economic data available more frequently, thus improving the frequency and quality of information needed by key decision makers. As part of the project, researchers conducted a unique joint project between the European Central Bank (ECB) and Federal Reserve Bank. The results showed that 'MIDAS regressions could have substantially improved the quality of forecasts during the recent financial crisis'. The results of the project were presented at the 2013 EC-squared conference held at the University of Cyprus, which was themed 'The Econometric Analysis of Mixed Frequency Data'. MIDAS regressions will be key in any future economic downturns, the project underlined, as decision makers will get frequent and accurate updates on the economy. This will improve economic predictions in the short and medium term, and put policymakers in a better position to intervene and minimise socioeconomic risks.