Munich Personal RePEc Archive

Factor Model Forecasts for New Zealand

Matheson, Troy D (2006): Factor Model Forecasts for New Zealand. Published in: International Journal of Central Banking , Vol. Volume, No. Number 2 (5. July 2006): pp. 169-237.

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Abstract

This paper focuses on forecasting four key New Zealand macroeconomic variables using a dynamic factor model and a large number of predictors. We compare the (simulated) real-time forecasting performance of the factor model with a variety of other time-series models (including the Reserve Bank of New Zealand’s published forecasts), and we gauge the sensitivity of our results to alternative variable-selection algorithms. We find that the factor model performs particularly well at longer horizons.

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