Nowcasting domestic demand using a dynamic factor model: the case of Ireland

Abstract

The COVID-19 pandemic highlighted the need for timely information on the evolving economic impacts of such a crisis. During these periods, there is an increased need to understand the current state of the economy to guide the effective implementation of policy. This is made difficult by the fact that official estimates of economic indicators, such as those published by national statistical agencies, are released with a substantial lag. Using the case of Ireland, this article shows that the information contained in a panel of monthly economic indicators can be related to Quarterly National Accounts under the methodological framework of a dynamic factor model (DFM). The article also suggests that accounting for structural breaks improves the nowcasting performance of domestic demand.