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Model card — Nowcasting and mixed frequencies

Family: dfm_nowcast, dfm_news, midas_weights, umidas, weighted_midas

Reading the economy in real time. The target (quarterly GDP) arrives late and rarely; the indicators (monthly, weekly, daily) arrive early and often, on a staggered "ragged edge." Two complementary toolkits handle this: MIDAS regressions map many high-frequency lags onto one low-frequency target through a parsimonious weight function, and dynamic factor models extract a common factor from a whole panel and let the Kalman filter fill the ragged edge. The dfm_news decomposition then attributes each nowcast revision to the specific data release that caused it.

Function Role
midas_weights The MIDAS weight kernels (exp-Almon, beta)
umidas Unrestricted MIDAS — one OLS coefficient per HF lag
weighted_midas Parsimonious MIDAS — NLS fit of a weight shape
dfm_nowcast Two-step dynamic-factor nowcast with a ragged edge
dfm_news Decompose a nowcast revision into per-datapoint news

What it estimates

  • midas_weights(scheme, θ₁, θ₂, k) — the k MIDAS weights that sum to 1, either the two-parameter exponential-Almon or beta kernel. These are the shapes that let a handful of parameters describe many high-frequency lags.
  • umidas(y, hf_lags) — the unrestricted MIDAS regression: with the frequency mismatch modest, just put each high-frequency lag in as its own OLS regressor. No weight function, but many parameters.
  • weighted_midas(y, hf_lags) — the restricted MIDAS: fit an intercept, a single slope, and the two weight-shape parameters by nonlinear least squares, so the high-frequency lag polynomial is described by four numbers regardless of how many lags there are.
  • dfm_nowcast(data) — a two-step (Doz-Giannone-Reichlin 2011) dynamic factor model: PCA for the loadings, a Kalman filter/smoother for the factor that handles missing cells, and a projection back onto each series to produce the nowcast at the ragged edge.
  • dfm_news(old_vintage, new_vintage) — the Banbura-Modugno (2014) news decomposition: it splits the change in the target nowcast between two data vintages into a sum of weight × news contributions, one per newly released datapoint, so you can say "the nowcast rose 0.3pp, mostly on the payrolls release."

Assumptions

  • DFM: a single common factor drives comovement. The panel should be genuinely co-moving; series with idiosyncratic dynamics contribute little and can be dropped. Data are treated as standardized internally, but you are responsible for transforming each series to stationarity first (growth rates, differences).
  • Ragged edge = NaN. Missing/not-yet-released cells are encoded as NaN and handled by the Kalman measurement update using only observed rows. The ragged edge belongs at the end (recent periods), which is where releases lag.
  • dfm_news requires nested vintages. Every cell observed in old_vintage must still be observed (and unchanged) in new_vintage — the new vintage is a superset of the old. News is the surprise in newly revealed cells relative to the model's prior forecast of them; a changed or vanished old value violates the decomposition and raises.
  • MIDAS weights sum to one, so scale is carried by the slope. The exp-Almon and beta kernels are flexible but unimodal — they cannot represent arbitrary lag shapes; that is the price of parsimony (and the reason umidas exists).
  • weighted_midas is a nonlinear fit and can be sensitive to starting values in poorly identified problems; it reports whether it converged.

When to use

  • umidas when the frequency ratio is small (monthly→quarterly, k a handful) and you have enough data to estimate one coefficient per lag.
  • weighted_midas when the ratio is large (daily→quarterly) or lags are many, so an unrestricted regression would overfit — the weight function regularizes the lag polynomial.
  • midas_weights to inspect or plot the kernel shapes, or to build a MIDAS regressor by hand.
  • dfm_nowcast when you have a panel of indicators and want one nowcast that pools their signal and respects the ragged edge.
  • dfm_news to explain why a nowcast moved between two release dates — the standard "what did we learn from today's data?" decomposition.

Key arguments and defaults

Call Argument Default Notes
midas_weights scheme, θ₁, θ₂, k — "exp_almon" or "beta"; k lags
umidas se_type "hac" robust SEs on the OLS coefficients
maxlags None HAC bandwidth (auto if None)
weighted_midas scheme "exp_almon" or "beta"
weight_start None (θ₁, θ₂) NLS starting values
dfm_nowcast n_factors 1 common factors extracted
factor_order 2 AR order of the factor process
dfm_news target_series 0 column index of the nowcast target
target_period None period to nowcast (default: last)
n_factors / factor_order 1 / 2 as in dfm_nowcast

How to read the output

  • midas_weights → a bare array of length k summing to 1.
  • umidas → {"params", "bse", "rsquared"}; params has one intercept plus one coefficient per high-frequency lag (length K+1), with HAC bse.
  • weighted_midas → {"scheme", "intercept", "slope", "weight_params", "weights", "fitted", "residuals", "ssr", "rsquared", "converged", "iterations"}. Check converged; read the estimated lag shape off weights.
  • dfm_nowcast → {"nowcast", "edge_factor", "loglik", "smoothed_factors", "n_factors", "factor_order"}. nowcast is one value per series at the ragged edge (in the series' own standardized-then-restored units); smoothed_factors is the factor path.
  • dfm_news → {"target_series", "target_period", "old_nowcast", "new_nowcast", "total_revision", "contributions"}. total_revision = new_nowcast − old_nowcast, and contributions is a list of dicts (series, period, actual, forecast, news, weight, contribution) whose contribution values sum to total_revision. Sort by abs(contribution) to find the release that moved the nowcast.

Failure modes

  • Non-stationary inputs to the DFM. Feeding levels (nominal GDP, price indices) instead of growth rates produces a factor dominated by trends and a meaningless nowcast. Transform to stationarity first.
  • Ragged edge in the wrong place, or non-NaN missings. Missing cells must be NaN; a sentinel like 0 or −999 will be read as data.
  • Non-nested vintages in dfm_news. If the new vintage drops or changes a cell the old one had, the call raises ("a cell observed in the old vintage is missing or changed in the new vintage"). Build the new vintage by adding releases to the old, never by revising past values in the same call.
  • Unrestricted MIDAS overfitting. With a large frequency ratio, umidas has too many parameters and fits noise; switch to weighted_midas.
  • weighted_midas not converging. Poorly identified weight shapes can stall the NLS; supply weight_start near a sensible decay, and check converged before trusting the fit.

Validated against

The DFM Kalman/state-space step is reference-exact (~1e-8) against a documented single-factor dynamic-factor model in the statsmodels DynamicFactor layout; the two-step nowcast and the Banbura-Modugno (2014) news decomposition are documented-formula goldens (an independent NumPy Kalman smoother), with the contributions verified to sum to the total revision. U-MIDAS is validated as OLS against a documented reference, and the exp-Almon / beta weight formulas and the weighted-MIDAS NLS against their published definitions. Fixtures: fixtures/tsecon-nowcast.json, fixtures/nowcast_news.json, fixtures/midas.json.

References

  • Ghysels, E., Santa-Clara, P. & Valkanov, R. (2004). "The MIDAS touch: Mixed data sampling regression models." Working paper.
  • Ghysels, E., Sinko, A. & Valkanov, R. (2007). "MIDAS Regressions: Further Results and New Directions." Econometric Reviews 26.
  • Doz, C., Giannone, D. & Reichlin, L. (2011). "A two-step estimator for large approximate dynamic factor models." J. Econometrics 164.
  • Bańbura, M. & Modugno, M. (2014). "Maximum Likelihood Estimation of Factor Models on Datasets with Arbitrary Pattern of Missing Data." J. Applied Econometrics 29.
  • Bańbura, Giannone, Modugno & Reichlin (2013). "Now-Casting and the Real-Time Data Flow." Handbook of Economic Forecasting 2.

See the guide: Nowcasting and Mixed Frequencies.

Runnable example

import numpy as np
import tsecon

rng = np.random.default_rng(7)

# ---------------------------- MIDAS ----------------------------
# 1. The weight kernels themselves (they sum to 1).
w = tsecon.midas_weights("exp_almon", 0.0, -0.2, 6)
print("exp-Almon weights sum to:", round(w.sum(), 6))

# Build a mixed-frequency regression: low-frequency y on K high-frequency lags.
nobs, K = 120, 6
HF = rng.standard_normal((nobs, K))
y = 0.5 + 2.0 * (HF @ w) + 0.3 * rng.standard_normal(nobs)

# 2. U-MIDAS: unrestricted, one OLS coefficient per high-frequency lag.
um = tsecon.umidas(y, HF, se_type="hac")
print("U-MIDAS R^2:", round(um["rsquared"], 3), " params:", um["params"].shape[0])

# 3. Weighted MIDAS: parsimonious NLS fit of the weight shape.
wm = tsecon.weighted_midas(y, HF, scheme="exp_almon")
print("weighted-MIDAS R^2:", round(wm["rsquared"], 3),
      " converged:", wm["converged"])

# ------------------------ DFM nowcasting ------------------------
T, Nser = 150, 5
f = np.cumsum(rng.standard_normal(T)) * 0.3
data = np.outer(f, rng.uniform(0.5, 1.5, Nser)) + rng.standard_normal((T, Nser)) * 0.5

# 4. Nowcast from a panel with a ragged edge (NaN = not-yet-released).
new_v = data.copy()
new_v[-1, 3] = np.nan; new_v[-1, 4] = np.nan          # two series lag by a period
now = tsecon.dfm_nowcast(new_v, n_factors=1, factor_order=1)
print("nowcast (5 series):", np.round(now["nowcast"], 2))

# 5. News decomposition: attribute a nowcast revision to each new datapoint.
old_v = new_v.copy()
old_v[-1, 0] = np.nan; old_v[-1, 1] = np.nan; old_v[-1, 2] = np.nan  # older, sparser vintage
old_v[-2, 3] = np.nan; old_v[-2, 4] = np.nan
news = tsecon.dfm_news(old_v, new_v, target_series=0, n_factors=1, factor_order=1)
print("revision:", round(news["total_revision"], 3),
      " from", len(news["contributions"]), "datapoints")
top = max(news["contributions"], key=lambda c: abs(c["contribution"]))
print("largest contribution from series", top["series"],
      "=", round(top["contribution"], 4))

Expected output:

exp-Almon weights sum to: 1.0
U-MIDAS R^2: 0.936  params: 7
weighted-MIDAS R^2: 0.934  converged: True
nowcast (5 series): [7.57 3.47 2.73 4.15 3.46]
revision: 0.088  from 5 datapoints
largest contribution from series 4 = 0.0759