Regional aggregate indicators under subnational heterogeneity: evidence from the COVID-19 pandemic in Spain

The COVID-19 outbreak forced governments to implement regional measures avoiding the spread of the virus, while evaluating their economic effects. However, official Spanish regional economic information is scarce. We estimate monthly regional aggregated indicators for each Spanish region combining a mixed frequency Dynamic Factor Model with a recursive procedure that identifies the most informative variables capturing economic developments in each region. The set of variables that better describe aggregate economic conditions varies considerably across the regions, which emphasizes the heterogeneity in their productive structures. Our results suggest that the post-pandemic recovery will be uneven across territories, stressing the need to monitor regional economic development