Nowcasting economic activity in European regions using a mixed-frequency dynamic factor model

Timely information about the state of regional economies can be essential for planning, implementing and evaluating locally targeted economic policies. However, European regional accounts for output are published at an annual frequency and with a two-year delay. To obtain robust and more timely measures in a computationally efficient manner, we propose a mixed-frequency dynamic factor model that accounts for national information to produce high-frequency estimates of the regional gross value added (GVA). We show that our model produces reliable nowcasts of GVA in 162 regions across 12 European countries.