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A Dynamic Factor Model For The Colombian Inflation

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  • Eliana González

    ()

  • Luis F. Melo

    ()

  • Viviana Monroy

    ()

  • Brayan Rojas

Abstract

ABSTRACT. We use a dynamic factor model proposed by Stock and Watson [1998, 1999,2002a,b] to forecast Colombian inflation. The model includes 92 monthly series observedover the period 1999:01-2008:06. The results show that for short-run horizons, factor modelforecasts significantly outperformed the auto-regressive benchmark model in terms of theroot mean squared forecast error statistic.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 005273.

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Length: 87
Date of creation: 09 Feb 2009
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Handle: RePEc:col:000094:005273

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Keywords: Dynamic factor models; static factor models; forecast accuracy.;

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  1. O. De Bandt & E. Michaux & C. Bruneau & A. Flageollet, 2007. "Forecasting inflation using economic indicators: the case of France," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(1), pages 1-22.
  2. Michael ARTIS & Anindya BANERJEE & Massimiliano MARCELLINO, 2001. "Factor Forecasts for the UK," Economics Working Papers ECO2001/15, European University Institute.
  3. Luis Fernando Melo & Héctor Núñez, . "Combinación de Pronósticos de la Inflación en Presencia de cambios Estructurales," Borradores de Economia 286, Banco de la Republica de Colombia.
  4. Ziegler, Christina & Eickmeier, Sandra, 2006. "How good are dynamic factor models at forecasting output and inflation? A meta-analytic approach," Discussion Paper Series 1: Economic Studies 2006,42, Deutsche Bundesbank, Research Centre.
  5. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
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  9. Boivin, Jean & Ng, Serena, 2005. "Understanding and Comparing Factor-Based Forecasts," MPRA Paper 836, University Library of Munich, Germany.
  10. Troy Matheson, 2005. "Factor model forecasts for New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2005/01, Reserve Bank of New Zealand.
  11. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  12. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  13. Massimiliano Marcellino & James Stock & Mark Watson, 2005. "A Comparison of Direct and Iterated Multistep AR Methods for Forecasting Macroeconomic Time Series," Working Papers 285, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  14. Harvey,Andrew C., 1991. "Forecasting, Structural Time Series Models and the Kalman Filter," Cambridge Books, Cambridge University Press, number 9780521405737, April.
  15. Marc-André Gosselin & Greg Tkacz, 2001. "Evaluating Factor Models: An Application to Forecasting Inflation in Canada," Working Papers 01-18, Bank of Canada.
  16. Forni, Mario & Reichlin, Lucrezia, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 453-73, July.
  17. Zaher, Fadi, 2007. "Evaluating factor forecasts for the UK: The role of asset prices," International Journal of Forecasting, Elsevier, vol. 23(4), pages 679-693.
  18. Otrok, C. & Whiteman, C.H., 1996. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," Working Papers 96-14, University of Iowa, Department of Economics.
  19. Kapetanios, George & Labhard, Vincent & Price, Simon, 2008. "Forecast combination and the Bank of England's suite of statistical forecasting models," Economic Modelling, Elsevier, vol. 25(4), pages 772-792, July.
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Cited by:
  1. Eliana González, . "Bayesian Model Averaging. An Application to Forecast Inflation in Colombia," Borradores de Economia 604, Banco de la Republica de Colombia.
  2. Andrés Felipe Londoño & Jorge Andrés Tamayo & Carlos Alberto Velásquez, 2012. "Dinámica de la política monetaria e inflación objetivo en Colombia: una aproximación FAVAR," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  3. Eliana González, 2010. "Bayesian Model Averaging. An Application to Forecast Inflation in Colombia," BORRADORES DE ECONOMIA 007013, BANCO DE LA REPÚBLICA.
  4. Eliana González, 2011. "Forecasting With Many Predictors. An Empirical Comparison," BORRADORES DE ECONOMIA 007996, BANCO DE LA REPÚBLICA.
  5. Eliana González, . "Forecasting With Many Predictors. An Empirical Comparison," Borradores de Economia 643, Banco de la Republica de Colombia.
  6. Eliana González, 2010. "Bayesian Model Averaging. An Application to Forecast Inflation in Colombia," BORRADORES DE ECONOMIA 007014, BANCO DE LA REPÚBLICA.
  7. Eliana González, 2010. "Bayesian Model Averaging. An Application to Forecast Inflation in Colombia," BORRADORES DE ECONOMIA 007015, BANCO DE LA REPÚBLICA.

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