Bridge models to forecast the euro area GDP

Quantitative information on the current state of the economy is crucial to economic policy-making and to early understanding of the economic situation, but the quarterly national account (NA) data for GDP in the euro area are released with a substantial delay. The aim of this paper is to examine the forecast ability of bridge models (BM) for GDP growth in the euro area. BM ‘bridge the gap’ between the information content of timely updated indicators and the delayed (but more complete) NA. In this paper, BM are estimated for aggregate GDP and components both area-wide and for the three main countries of the euro area. Their short-term (one- and two-quarter ahead) forecasting performance is assessed with respect to benchmark univariate/multivariate statistical models, and a small structural model. The paper shows that national BM fare better than benchmark models. In addition, euro area GDP and its components are more precisely predicted by aggregating national forecasts.