LITERATURE REVIEW

Literature Review



Literature Review

Reliable forecast of key macroeconomic indicators plays an important role for the formulation of monetary and fiscal policies of a country. As a result of the high demand on the need of macroeconomic key values to evaluate the current economic situation and to understand the development in the economic activity as well, economic forecasters pay more attention to use the information available promptly at monthly frequency. For example, industrial production, retail trade data, business surveys, financial variables and others. However, these data are usually become available within different lags after the end of the entire month or quarter. Some of these data are useful and available at the end of the corresponding period exactly such as the surveys outcomes, whereas industrial production is usually ready to use with a shorter lag than the other variables and on a monthly basis in most of the countries. From this point, many efforts have been put to scrutinize the advantages of using monthly indicator in the forecasting model used in statistics. Some work has suggested that these outcomes in substantial developments in the forecasting of current quarter gross domestic product growth.

Typically, studies use mainly two approaches based on the availability of the data to be employed in the model. The first approach basically tends to use the total quarterly aggregates of the monthly variables and embodies small set of the monthly indicator variables to acquire short-term prophecies of Gross Domestic Product and additional national account aggregate. Trehan (1992) presents and updates a simple model for using the contemporaneous monthly data to predict the real GDP by employing the selected series for the period from January 1981 to June 1991 in the model. In this paper three variables only out of 16 has been selected including: real retail sales, industrial production and non agriculture employment as these become early available in the quarter. The model is an updated model which has been originally applied to forecast real gross national product and performed reasonably.

In particular, examples of several works to overcome this problem have been implemented. Therefore, the second approach has been raised were its basic idea aim to use the incomplete data of the prospective quarter, so; use the available information for the first two months and forecast the last month in the quarter then use this combination to predict earlier estimation for the variable of interest such as output or inflation. Further development has been done to improve the forecast by updating the data whenever the information becomes available. Useful examples of studies which deal with the efficient treatment of new monthly information that becomes available within the quarter to US data are Rathjens and Robins (1993), Ingenito and Trehan (1996) and Robertson and Tallman (1999), were other studies have been done for Euro area such as R•unstler & Sedillot (2003) and Ba gi et al. (2004). Actually, Ingenito and Trehan (1996) is an update to Trehan (1992), they examine more than 30 potentially informative monthly indicators, then at the end choose only two indicators without ...