Suppose it\u2019s the end of August, and one want to get the best estimate of Wisconsin real GDP for Q2. As of August, only Q1 Wisconsin GDP is available. What\u2019s the best guess of of Q2 GDP, keeping in mind the number of monthly indicators at the state level is much lower than that for the Nation. Here\u2019s my tentative answer.<\/p>\n
Figure 1:<\/strong> Wisconsin GDP (bold black), random walk with drift forecast (green), error correction model (red), +\/- one standard error band (gray lines), all in mn.Ch.2017$ SAAR. Source: BEA, author\u2019s calculations.<\/em><\/p>\n Forecast based upon these data, and this regression:<\/p>\n Figure 2:<\/strong> Wisconsin GDP to US GDP, in logs (blue, left scale), US GDP in log first differences (tan, right scale), Wisconsin NFP in log first differences\u00a0 (green, right scale), all s.a. 2024Q3 WI NFP observation is the average for July, August. Source: BEA, BLS, author\u2019s calculations.<\/em><\/p>\n \u0394yWI<\/sup>t<\/sub><\/em>= 0.720<\/strong> + 1.130<\/strong>\u0394yUS<\/sup>t<\/sub><\/em> \u2013 0.268<\/strong>(yWI<\/sup>t-1<\/sub>-yUS<\/sup>t-1<\/sub><\/em>) + 1.428<\/strong>\u0394nWI<\/sup>t<\/sub><\/em><\/p>\n Adj-R2<\/sup> = 0.78, SER = 0.0036, N=13, DW=1.85, sample 2021Q1-2024Q1. Bold face indicates statistical significance at 10% msl, using Newey-West standard errors.<\/p>\n 13 observations seems like a slender thread to hang a nowcast upon. Unfortunately, this specification fails completely for the full sample of available data (2005Q1-2024Q1, where I\u2019ve spliced the real GDP series in Ch.2012$ and Ch.2017$). Pre-pandemic, the error correction terms has a positive sign; this is true, regardless of whether the pandemic recession and immediate aftermath (2020Q1-2020Q4) is omitted or not. Rather, a single regressor dominates (US GDP growth). Here\u2019s a comparison:<\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/09\/gdpnowcastpix.png\")
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