Tuesday, August 23, 2011

Tracking Indian Growth in Real Time

NIPFP Working Paper 90

Rudrani Bhattacharya, Radhika Pandey and Giovanni Veronese
July 2011


Tracking growth in the Indian economy would be best performed using a measure like GDP. Unfortunately official estimates of this indicator are released with quarterly frequency and with considerable delay. This paper compares different approaches to the short term forecasting (nowcasting) of real GDP growth in India and evaluates methods to optimally gauge the current state of the economy. Univariate quarterly models are compared with bridge models that exploit the available monthly indicators containing information on current quarter developments. In the forecasting exercise we perform a pseudo real-time simulation: by properly taking into account the actual publication lags of the series, we replicate the information set available to the policymaker at each point of time. We find that bridge models perform satisfactorily in predicting current quarter GDP growth. This result follows from the actual estimation technique used to construct the official quarterly national accounts, still largely dependent on a narrow information set. Our analysis also suggests mixed evidences about the additional predictive power of Indian survey data with respect to the hard data already used in the national accounts.