Forecasting U.S. Economic Growth in Downturns Using Cross-Country Data

September 2, 2020
By Yifei Lyu, Jun Nie and Shu-Kuei X. Yang

Research Working PaperIncorporating cross-country data helps forecast U.S. GDP growth in economic downturns.

To examine whether including economic data on other countries could improve the forecast of U.S. GDP growth, we construct a large data set of 77 countries representing over 90 percent of global GDP. Our benchmark model is a dynamic factor model using U.S. data only, which we extend to include data from other countries. We show that using cross-country data produces more accurate forecasts during the global financial crisis period. Based on the latest vintage data on August 6, 2020, the benchmark model forecasts U.S. real GDP growth in 2020:Q3 to be −6.9 percent (year-over-year rate) or 14.9 percent (quarter-over-quarter annualized rate), whereas the forecast is revised upward to −6.1 percent (year-over-year) or 19.1 percent (quarter-over-quarter) when cross-country data are used. These examples suggest that U.S. data alone may fail to capture the spillover effects of other countries in downturns. However, we find that foreign variables are much less useful in normal times.

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RWP 20-09, August 2020

JEL Classification: C32, C38, C53, C55, E32, E37

Article Citation

  • Lyu, Yifei, Jun Nie, and Shu-Kuei X. Yang. 2020. “Forecasting U.S. Economic Growth in Downturns Using Cross-Country Data.” Federal Reserve Bank of Kansas City, Research Working Paper no. 20-09, August. Available at

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