The cyclical component factor model

Publikation: Working paperForskning

  • Christian Møller Dahl, Danmark
  • Henrik Hansen, Københavns Universitet, Danmark
  • John Smidt, Danish Economic Council, Danmark
  • Institut for Økonomi
Forecasting using factor models based on large data sets have received ample
attention due to the models' ability to increase forecast accuracy with
respect to a range of key macroeconomic variables in the US and the UK.
However, forecasts based on such factor models do not uniformly outperform
the simple autoregressive model when using data from other countries.
In this paper we propose to estimate the factors based on the pure cyclical
components of the series entering the large data set. Monte Carlo evidence
and an empirical illustration using Danish data shows that this procedure
can indeed improve on pseudo real time forecast accuracy.
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider13
StatusUdgivet - 2008

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