Nowcasting industrial production using linear and non-linear models of electricity demand

This article proposes different modelling approaches which exploit electricity market data to nowcast industrial production. Our models include linear, mixed-data sampling (MIDAS), Markov-Switching (MS) and MS-MIDAS regressions. Comparisons against autoregressive approaches and other commonly used macroeconomic predictors show that electricity market data combined with an MS model significantly improve nowcasting performance, especially during turbulent economic states, such as those generated by the recent COVID-19 pandemic. The most promising results are provided by an MS model which identifies two volatility regimes. These results confirm that electricity market data provide timely and easy-to-access information for nowcasting macroeconomic variables, especially when it is most valuable, i.e. during times of crisis and uncertainty.