GDP nowcasting with artificial neural networks: How much does long-term memory matter?
Authors
AI Summary
Sign in to view the AI-generated summary, key takeaways, and more.
Sign in to viewAbstract
We apply artificial neural networks (ANNs) to nowcast quarterly GDP growth for the U.S. economy. Using the monthly FRED-MD database, we compare the nowcasting performance of five different ANN architectures: the multilayer perceptron (MLP), the one-dimensional convolutional neural network (1D CNN), the Elman recurrent neural network (RNN), the long short-term memory network (LSTM), and the gated recurrent unit (GRU). The empirical analysis presents results from two distinctively different evaluation periods. The first (2012:Q1 -- 2019:Q4) is characterized by balanced economic growth, while the second (2012:Q1 -- 2024:Q2) also includes periods of the COVID-19 recession. During the first evaluation period, longer input sequences slightly improve nowcasting performance for some ANNs, but the best accuracy is still achieved with 8-month-long input sequences at the end of the nowcasting window. Results from the second test period depict the role of long-term memory even more clearly. The MLP, the 1D CNN, and the Elman RNN work best with 8-month-long input sequences at each step of the nowcasting window. The relatively weak performance of the gated RNNs also suggests that architectural features enabling long-term memory do not result in more accurate nowcasts for GDP growth. The combined results indicate that the 1D CNN seems to represent a \textit{``sweet spot''} between the simple time-agnostic MLP and the more complex (gated) RNNs. The network generates nearly as accurate nowcasts as the best competitor for the first test period, while it achieves the overall best accuracy during the second evaluation period. Consequently, as a first in the literature, we propose the application of the 1D CNN for economic nowcasting.
Related Papers
Policy Learning under Endogeneity Using Instrumental Variables
I propose a framework for learning individualized policy rules in observational data settings characterized by endogenous treatment selection and the
Optimal Conditional Inference in Adaptive Experiments
We study batched bandit experiments and consider the problem of inference conditional on the realized stopping time, assignment probabilities, and target parameter, where all
Interpreting Event-Studies from Recent Difference-in-Differences Methods
This note discusses the interpretation of event-study plots produced by recent difference-in-differences methods. I show that even when specialized to the
Potential weights and implicit causal designs in linear regression
When we interpret linear regression as estimating causal effects justified by quasi-experimental treatment variation, what do we mean? This paper formalizes a minimal criterion