Forecasting regional house price inflation: a comparison between dynamic factor models and vector autoregressive models
AbstractThis paper uses the dynamic factor model framework, which accommodates a large cross-section of macroeconomic time series, for forecasting regional house price inflation. In this study, we forecast house price inflation for five metropolitan areas of South Africa using principal components obtained from 282 quarterly macroeconomic time series in the period 1980:1 to 2006:4. The results, based on the root mean square errors of one to four quarters ahead out‐of‐sample forecasts over the period 2001:1 to 2006:4 indicate that, in the majority of the cases, the Dynamic Factor Model statistically outperforms the vector autoregressive models, using both the classical and the Bayesian treatments. We also consider spatial and non‐spatial specifications. Our results indicate that macroeconomic fundamentals in forecasting house price inflation are important. Copyright (C) 2010 John Wiley & Sons, Ltd.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.
Volume (Year): 30 (2011)
Issue (Month): 2 (March)
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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966
Bayesian models ; forecast accuracy ; spatial and non‐spatial models ;
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- Gupta, Rangan & Kabundi, Alain & Miller, Stephen M., 2011.
"Forecasting the US real house price index: Structural and non-structural models with and without fundamentals,"
Elsevier, vol. 28(4), pages 2013-2021, July.
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- Rangan Gupta, 2012. "Forecasting House Prices for the Four Census Regions and the Aggregate US Economy: The Role of a Data-Rich Environment," Working Papers 201214, University of Pretoria, Department of Economics.
- Mirriam Chitalu Chama-Chiliba & Rangan Gupta & Nonophile Nkambule & Naomi Tlotlego, 2011. "Forecasting Key Macroeconomic Variables of the South African Economy Using Bayesian Variable Selection," Working Papers 201132, University of Pretoria, Department of Economics.
- Ercio Muñoz & Pablo Cruz, 2012. "Uso de un Modelo Favar para Proyectar el Precio del Cobre," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(3), pages 84-95, December.
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