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Nowcasting for economic policy and beyond
Nowcasting is a forecasting methodology that is becoming increasingly popular in economics. The use case considers the potential use of Νowcasting in the context of economic policy setting and sets the potential value of an extended use of Νowcasting against different contexts.
Type of content:
Assets
Type of asset:
Use case
Big data potential
Yes
Policy domains:
Economy & Finance
Phase in the policy cycle:
Policy Design and Analysis
Open license availability
No
Tags:
Strategic planning
Addresses:
| SWOT Analysis for Nowcasting for economic policy and beyond |
||
|---|---|---|
| Helpful | Harmful | |
Internal |
Strengths• Help increasing responsiveness of decision-making in areas with moving targets and quick intervention cycles. • Estimating complex variables in the short-term, • It is a statistical method that can be applied to a broad range of policy fields and purposes. • Based on predictive analytics and models that are applied to real-time or close to real-time monitoring data of complex variables in order to define an estimate • Central banks are exploring or testing nowcasting applications |
Weaknesses• Low ease of use • Nowcasting always depends on the accuracy of the real-time information • Nowcasting can lead to flawed conclusions. E.g. Google Flu Trends proved to persistently overestimate flu prevalence because, amongst other reasons, the search queries used by people seemed to be biased • Nowcasting can be used by policymakers only when the conceptual model is valid, the data sources are reliable and the data collection and analysis are sound • The concept of Nowcasting is blurring the lines between forecasting and monitoring, especially when similar datasets are being used |
External |
Opportunities• Support in policymaking in the economic sphere through real-time monitoring • Nowcasting methods are expected to add value in those cases where the data collection and computing of the main variable is too slow a process compared to the needed or desirable pace of decision-making. Essentially, it is a statistical method that can be applied to a broad range of policy fields and purposes. • Can be applied to infer sentiment data in real-time or close to real-time, in substitution of, for example, surveys. This idea of using nowcasting for public consultations is closely connected to the methodologies of text and sentiment mining, • Central banks all over the world are exploring Nowcasting methods in order to improve their monetary policy responses to such developments. The main aim consists in assessing changes in the economy during or shortly after they occur, which would enable more timely policy interventions. |
Threats• Privacy issues especially when used for public consultations: People might state opinions or comments on social media but would not want to have them included in any public consultation process. • Challenges in data collection and modelling for nowcasting: the identification of observable factors that influence the main variable and which, factored into a reliable conceptual model, allow for extrapolation and an estimate of the dependent variable |
