A Gaussian-process dynamic factor model with a linear VAR state equation produces modest out-of-sample forecast gains over linear DFMs and shows state-dependent global inflation dynamics.
Nowcasting with Mixed Frequency Data Using Gaussian Processes
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abstract
We develop Bayesian machine learning methods for mixed data sampling (MIDAS) regressions. This involves handling frequency mismatches and specifying functional relationships between many predictors and the dependent variable. We use Gaussian processes (GPs) and compress the input space with structured and unstructured MIDAS variants. This yields several versions of GP-MIDAS with distinct properties and implications, which we evaluate in short-horizon now- and forecasting exercises with both simulated data and data on quarterly US output growth and inflation in the GDP deflator. It turns out that our proposed framework leverages macroeconomic Big Data in a computationally efficient way and offers gains in predictive accuracy compared to other machine learning approaches along several dimensions.
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econ.EM 1years
2025 1verdicts
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A Bayesian Gaussian Process Dynamic Factor Model
A Gaussian-process dynamic factor model with a linear VAR state equation produces modest out-of-sample forecast gains over linear DFMs and shows state-dependent global inflation dynamics.