Real-time nowcasting the US output gap: Singular spectrum analysis at work

Abstract

We explore a new approach for nowcasting the output gap based on singular spectrum analysis. Resorting to real-time vintages, a recursive exercise is conducted in order to assess the real-time reliability of our approach for nowcasting the US output gap, relative to some well-known benchmark models. For our application of interest, the preferred version of our approach is a multivariate singular spectrum analysis, where we use a Fisher g test to infer which components, within the standard business cycle range, should be included in the grouping step. We find that singular spectrum analysis provides a reliable assessment of the cyclical position of the economy in real time, with the multivariate approach outperforming its univariate counterpart substantially.