Justin Irving's real-time US NGDP indicator
For some time I have wanted to write about a couple of extremely interesting blog posts by Justin Irving on his excellent blog Economic Sophism. In three blog posts (here, here and here) Justin has explained how he has estimated a real-time model for next year's US NGDP growth. I don't want to get into details of Justin method, but overall Justin is using so-called Principal Component Analysis to identify a common "trend" in different financial asset prices to estimate a real-time forecast for expectations for next year's US NGDP. The graph below shows a week of data for US NGDP expectations according to Justin's model. As far as I know Justin's model produces new forecasts every three-minutes. That of course provides analysts, commentators, reporters and policy makers with an extremely interesting tool. Just imagine how the tool can be used during a FOMC meeting. First how will the indicator react when a policy decision is announced? And then later during Ben Bernanke's Q&E session. We will actually be able to in real-time to evaluate whether Bernanke's comments and guidance is tightening or easing monetary conditions. So I certainly hope that Justin will make the real-time available during the next FOMC meeting. Maybe Justin should be tweeting real-time during the next FOMC meeting and Bernanke's Q&E? Otherwise I will do it...(btw you find me on Twiiter here) PS I have earlier suggested using market data to estimate NGDP expectations in the US. See my blog post "Markets are telling us where NGDP growth is heading"