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Beschreibung:
Germany's economic composition is heterogenous across regions, which makes regional economic projections based on German gross domestic product (GDP) growth unreliable. In this paper, we develop forecasting models for Baden-Württemberg's economic growth, a regional economy that is dominated by small- and medium-sized enterprises with a strong focus on foreign trade. For this purpose, we evaluate the backcasting and nowcasting performance of mixed data sampling (MIDAS) regressions with forecast combinations against an approximate dynamic mixed-frequency factor model. Considering a wide range of regional, national, and global predictors, we find that our high-dimensional models outperform benchmark time series models. Surprisingly, we also find that combined forecasts based on simple single-predictor MIDAS regressions are able to outperform forecasts from more sophisticated dynamic factor models.