Bessonovs, Andrejs (2011): GDP Modelling with Factor Model: an Impact of Nested Data on Forecasting Accuracy.
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Uncertainty associated with an optimal number of macroeconomic variables to be used in factor model is challenging since there is no criteria which states what kind of data should be used, how many variables to employ and does disaggregated data improve factor model’s forecasts. The paper studies an impact of nested macroeconomic data on Latvian GDP forecasting accuracy within factor modelling framework. Nested data means disaggregated data or sub-components of aggregated variables. We employ Stock-Watson factor model in order to estimate factors and to make GDP projections two periods ahead. Root mean square error is employed as the standard tool to measure forecasting accuracy. According to this empirical study we conclude that additional information that contained in disaggregated components of macroeconomic variables could be used to enhance Latvian GDP forecasting accuracy. The efficiency gain improving forecasts is about 0.15-0.20 percentage points of year on year quarterly growth for the forecasting period 1 quarter ahead, but for 2 quarter ahead it’s about half percentage point.
|Item Type:||MPRA Paper|
|Original Title:||GDP Modelling with Factor Model: an Impact of Nested Data on Forecasting Accuracy|
|English Title:||GDP Modelling with Factor Model: an Impact of Nested Data on Forecasting Accuracy|
|Keywords:||Factor model, forecasting, nested data, RMSE.|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
|Depositing User:||Andrejs Bessonovs|
|Date Deposited:||14. Apr 2011 01:04|
|Last Modified:||31. Dec 2015 02:31|
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