MIDAS

The Econometric Analysis of Mixed Frequency Data and its use in Policy Making

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 Obiettivo del progetto (Objective)

'The project deals with methods that are applicable across different scientific disciplines and is therefore inherently multidisciplinary. Our focus, however, will be on economic applications, as this is our field of expertise. Economic time series are sampled at different frequencies. For example, financial markets data are available on a (intra-)daily basis, while many macroeconomic series are observed monthly or quarterly. The typical approach adopted in empirical research is to align the data at the lowest sampling frequency and run regressions with same-frequency data. This leads to loss of information. In addition, the availability of high frequency financial data represents an opportunity to update expectations about low frequency macroeconomic time series – something that is of key importance to policy decision makers. Our research pertains to methods that allow us to handle mixed frequency data in empirical research as well as provide tools for policy makers to use the steady flow of high frequency data to help guide their decision making process. The research is based on a framework, using so called MIDAS, meaning Mi(xed) Da(ta) S(ampling) regressions that involve data sampled at different frequencies. This research opens up many new areas, some of which have already been studied, while many others remain unexplored. The purpose of this research project is to study the many unexplored areas ranging from systemic risk monitoring to macroeconomic forecasting for the Euro area for the purpose of policy decision.'

Introduzione (Teaser)

A new method of economic forecasting, called nowcasting, will improve the quality of data that European policymakers require to make decisions.

Descrizione progetto (Article)

Economic data is available at different frequencies. For example, data from financial markets come on a daily basis, while economic data are often reported monthly or quarterly. When data available at different frequencies are subjected to empirical analysis through traditional methods information is often lost, leading to an inaccurate depiction of the situation.

Now, an EU-funded project called 'The econometric analysis of mixed frequency data and its use in policy making' (MIDAS) has come up with a method improving the analysis of this mixed data. Called MIDAS regressions, one of its most important applications is providing better forecasts of the economy, which the project calls 'nowcasts'.

Nowcasts make period economic data available more frequently, thus improving the frequency and quality of information needed by key decision makers.

As part of the project, researchers conducted a unique joint project between the European Central Bank (ECB) and Federal Reserve Bank. The results showed that 'MIDAS regressions could have substantially improved the quality of forecasts during the recent financial crisis'.

The results of the project were presented at the 2013 EC-squared conference held at the University of Cyprus, which was themed 'The Econometric Analysis of Mixed Frequency Data'. MIDAS regressions will be key in any future economic downturns, the project underlined, as decision makers will get frequent and accurate updates on the economy.

This will improve economic predictions in the short and medium term, and put policymakers in a better position to intervene and minimise socioeconomic risks.