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Date : Feb 25, 2020
RBI Working Paper No. 03/2020: Nowcasting Indian GDP growth using a Dynamic Factor Model

Today the Reserve Bank of India placed on its website a Working Paper titled “Nowcasting Indian GDP growth using a Dynamic Factor Model” under the Reserve Bank of India Working Paper Series.* The Paper is co-authored by Soumya Bhadury, Saurabh Ghosh and Pankaj Kumar.

This paper constructs single-index dynamic factors (DFs) using a sequentially expanding list of 6, 9 and 12 high-frequency activity indicators. These indicators represent various sectors, display high contemporaneous correlation with GDP, and track GDP turning points well. DFs, estimated using a dynamic factor model and representing the common trend underlying diverse indicators, provide a real time assessment of the state of the economy and identify sectors contributing to economic fluctuations. DFs may be used to nowcast quarterly GDP growth well before its official release with better accuracy as compared to alternative time-series models.

Ajit Prasad

Press Release: 2019-2020/1985

* The Reserve Bank of India introduced the RBI Working Papers series in March 2011. These papers present research in progress of the staff members of the Reserve Bank and are disseminated to elicit comments and further debate. The views expressed in these papers are those of authors and not of the Reserve Bank of India. Comments and observations may kindly be forwarded to authors. Citation and use of such papers should take into account its provisional character.