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Forecasting macroeconomic variables for the new member states of the European Union

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Author Info
Anindya Banerjee () (Corresponding author: Department of Economics, European University Institute, Via della Piazzuola, 43, 50133 Firenze, Italy)
Massimiliano Marcellino () (IEP-Bocconi University, IGIER, and CEPR,Via Salasco, 5, 20136, Milano, Italy)
Igor Masten () (Faculty of Economics, University of Ljubljana, Kardeljeva ploscad 17, 1000, Ljubljana, Slovenia)

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Abstract

The accession of ten countries into the European Union makes the forecasting of their key macroeconomic indicators an exercise of some importance. Because of the transition period, only short spans of reliable time series are available, suggesting the adoption of simple time series models as forecasting tools. However, despite this constraint on the span of data, a large number of macroeconomic variables (for a given time span) are available, making the class of dynamic factor models a reasonable alternative forecasting tool. The relative performance of these two forecasting approaches is compared by using data for five new Member States. The role of Euro-area information for forecasting and the usefulness of robustifying techniques such as intercept corrections are also evaluated. We find that factor models work well in general, although with marked differences across countries. Robustifying techniques are useful in a few cases, while Euro-area information is virtually irrelevant.

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Paper provided by European Central Bank in its series Working Paper Series with number 482.

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Length: 46 pages
Date of creation: May 2005
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Handle: RePEc:ecb:ecbwps:20050482

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Related research
Keywords: Factor models; forecasts; time series models; new Member States.;

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Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April. [Downloadable!] (restricted)
    Other versions:
  2. Artis, M. & Marcellino, M., 1999. "Fiscal Forecasting: the Track Record of the IMF, OECD and EC," Economics Working Papers eco99/22, European University Institute.
    Other versions:
  3. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December. [Downloadable!] (restricted)
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  5. Zsolt Darvas & György Szapáry, 2004. "Business Cycle Synchronisation in the Enlarged EU: Comovements in the New and Old Members," MNB Working Papers 2004/1, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
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  10. Massimiliano Marcellino & James H. Stock & Mark W. Watson, . "Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information," Working Papers 201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Viktors Ajevskis & Gundars Davidsons, 2008. "Dynamic Factor Models in Forecasting Latvia's Gross Domestic Product," Working Papers 2008/02, Latvijas Banka. [Downloadable!]
  2. Katrin Tinn, 2005. "Optimal research in financial markets with heterogeneous private information a rational expectations model," Working Paper Series 493, European Central Bank. [Downloadable!]
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  3. Matthias Mohr, 2005. "A Trend-Cycle(-Season) Filter," Econometrics 0508004, EconWPA. [Downloadable!]
    Other versions:
  4. Sandra Eickmeier & Joerg Breitung, 2006. "Business cycle transmission from the euro area to CEECs," Computing in Economics and Finance 2006 229, Society for Computational Economics. [Downloadable!]
  5. Christian Dreger & Konstantin A. Kholodilin, 2007. "Prognosen der regionalen Konjunkturentwicklung," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 76(4), pages 47-55. [Downloadable!] (restricted)
    Other versions:
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