Nowcasting: An economist’s golden bow

Abstract

What does ‘nowcast’ mean here? It is the RBI’s forecast value for Indian GDP in Q3 of 2020, which they did for the first time using the Nowcasting Technique. Gross Domestic Product (GDP) is the most important measure to assess the economic state of the country. The country’s GDP is released 45 days (almost half a Quarter) post completion of the Quarter. This lag is impeding the Government from assessing the impact of its policies and updating them at the right time. This prompted economists to take more interest in accurately forecasting the country’s GDP. Traditionally, economists used simple forecasting techniques such as VAR, ARIMAX, VECM to forecast GDP. But since the last two years, nowcasting techniques rose to fame for forecasting macroeconomic indicators in Econometrics.