Machine learning time series regressions with an application to nowcasting

The statistical imprecision of quarterly gross domestic product (GDP) estimates, along with the fact that the first estimate is available with a delay of nearly a month, pose a significant challenge to policy makers, market participants, and other observers with an interest in monitoring the state of the economy in real time; see, e.g., Ghysels, Horan, and Moench (2018) for a recent discussion of macroeconomic data revision and publication delays. A term originated in meteorology, nowcasting pertains to the prediction of the present and very near future. Nowcasting is intrinsically a mixed frequency data problem as the object of interest is a low-frequency data series (e.g., quarterly GDP), whereas the real-time information (e.g., daily, weekly, or monthly) can be used to update the state, or to put it differently, to nowcast the low-frequency series of interest. Traditional methods used for nowcasting rely on dynamic factor models that treat the underlying low frequency series of interest as a latent process with high frequency data noisy observations. These models are naturally cast in a state-space form and inference can be performed using likelihood-based methods and Kalman filtering techniques; see Bańbura, Giannone, Modugno, and Reichlin (2013) for a recent survey.