Nowcasting with signature methods

arXiv2305.10256MaRDI QIDQ6436977

Samuel N. Cohen, Áureo de Paula, Craig Scott, Silvia Lui, Andrew Reeves, Lingyi Yang, Lars P. Nesheim, Will Malpass, Giulia Mantoan, Emma Small

Publication date: 17 May 2023

Abstract: Key economic variables are often published with a significant delay of over a month. The nowcasting literature has arisen to provide fast, reliable estimates of delayed economic indicators and is closely related to filtering methods in signal processing. The path signature is a mathematical object which captures geometric properties of sequential data; it naturally handles missing data from mixed frequency and/or irregular sampling -- issues often encountered when merging multiple data sources -- by embedding the observed data in continuous time. Calculating path signatures and using them as features in models has achieved state-of-the-art results in fields such as finance, medicine, and cyber security. We look at the nowcasting problem by applying regression on signatures, a simple linear model on these nonlinear objects that we show subsumes the popular Kalman filter. We quantify the performance via a simulation exercise, and through application to nowcasting US GDP growth, where we see a lower error than a dynamic factor model based on the New York Fed staff nowcasting model. Finally we demonstrate the flexibility of this method by applying regression on signatures to nowcast weekly fuel prices using daily data. Regression on signatures is an easy-to-apply approach that allows great flexibility for data with complex sampling patterns.

Has companion code repository: https://github.com/datasciencecampus/signow_ons_turing

Mathematics Subject Classification ID

Inference from stochastic processes and prediction (62M20) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Signal detection and filtering (aspects of stochastic processes) (60G35) Signatures and data streams (60L10) Applications of rough analysis (60L90)

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