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WORKING PAPER SERIES Factor forecasts for the UK
| Content Provider | Semantic Scholar |
|---|---|
| Author | Artis, Michael J. Banerjee, Anindya Marcellino, Massimiliano |
| Copyright Year | 2001 |
| Abstract | Time series models are often adopted for forecasting because of their simplicity and good performance. The number of parameters in these models increases quickly with the number of variables modelled, so that usually only univariate or small-scale multivariate models are considered. Yet, data are now readily available for a very large number of macroeconomic variables that are potentially useful when forecasting. We argue that recent developments in the theory of dynamic factor models enable such large data sets to be summarized by relatively few estimated factors, which can then be used to improve forecast accuracy. In this paper we construct a large macroeconomic data-set for the UK, with about 80 variables, model it using a dynamic factor model, and compare the resulting forecasts with those from a set of standard time series models. We find that just six factors are sufficient to explain 50% of the variability of all the variables in the data set. Moreover, these factors, which can be considered as the main driving forces of the economy, are related to key variables such as interest rates, monetary aggregates, prices, housing and labour market variables, and stock prices. Finally, the factor-based forecasts are shown to improve upon standard time series benchmarks for prices, real aggregates, and financial variables, at virtually no additional modelling or computational costs. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.iue.it/Personal/Banerjee/papers/abm2601.pdf |
| Alternate Webpage(s) | http://cadmus.eui.eu/bitstream/handle/1814/769/ECO2001-15.pdf?isAllowed=y&sequence=1 |
| Alternate Webpage(s) | http://www.iue.it/Personal/Banerjee/DFMR1-26-10.pdf |
| Language | English |
| Access Restriction | Open |
| Subject Keyword | Eighty Entity Name Part Qualifier - adopted Heart rate variability Labor (Childbirth) Money Projections and Predictions Time series |
| Content Type | Text |
| Resource Type | Article |
