Electronic payment transactions and cheques can be used to formulate nowcasts of current gross domestic product growth

Electronic payment transactions and cheques can be used to formulate “nowcasts” of current gross domestic product growth for policy-makers.

This paper assesses the technique and finds that debit card transactions contribute most to forecast accuracy, according to a study published by ECB:

We assess the usefulness of a large set of electronic payments data comprising debit and credit card transactions, as well as cheques that clear through the banking system, as potential indicators of current GDP growth.

These variables capture a broad range of spending activity and are available on a very timely basis, making them suitable current indicators.

While every transaction made with these payment mechanisms is in principle observable, the data are aggregated for macroeconomic
forecasting.

Controlling for the release dates of each of a set of indicators, we generated nowcasts of GDP growth for a given quarter over a span of five months, which is the period over which interest in nowcasts would exist.

We find that nowcast errors fall by about 65 per cent between the first and final nowcast.

Evidence on the value of the additional payments variables suggests that there may be modest reductions in forecast loss, tending to appear in nowcasts produced at the beginning of a quarter.

Among the payments variables considered, debit card transactions
appear to produce the greatest improvements in forecast accuracy.

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