MIDAS versus mixed-frequency VAR:nowcasting GDP in the euro area

This paper compares the mixed-data sampling (MIDAS) and mixed-frequency VAR(MF-VAR) approaches to model speci…cation in the presence of mixed-frequency data,e.g., monthly and quarterly series. MIDAS leads to parsimonious models based onexponential lag polynomials for the coe¢ cients, whereas MF-VAR does not restrictthe dynamics and therefore can su¤er from the curse of dimensionality. But if therestrictions imposed by MIDAS are too stringent, the MF-VAR can perform better.Hence, it is di¢ cult to rank MIDAS and MF-VAR a priori, and their relative ranking isbetter evaluated empirically. In this paper, we compare their performance in a relevantcase for policy making, i.e., nowcasting and forecasting quarterly GDP growth in theeuro area, on a monthly basis and using a set of 20 monthly indicators. It turns outthat the two approaches are more complementary than substitutes, since MF-VARtends to perform better for longer horizons, whereas MIDAS for shorter horizons.[...] Vladimir Kuzin, Massimiliano Marcellino, Christian Schumacher