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TF-MIDAS: a new mixed-frequency model to forecast macroeconomic variables

Bonino-Gayoso, Nicolás and García-Hiernaux, Alfredo (2019): TF-MIDAS: a new mixed-frequency model to forecast macroeconomic variables.

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This paper tackles the mixed-frequency modeling problem from a new perspective. Instead of drawing upon the common distributed lag polynomial model, we use a transfer function representation to develop a new type of models, named TF-MIDAS. We derive the theoretical TF-MIDAS implied by the high-frequency VARMA family models and as a function of the aggregation scheme (flow and stock). This exact correspondence leads to potential gains in terms of nowcasting and forecasting performance against the current alternatives. A Monte Carlo simulation exercise confirms that TF-MIDAS beats UMIDAS models in terms of out-of-sample nowcasting performance for several data generating high-frequency processes.

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