Forecasting macroeconomic variables for the new member states of the European Union
AbstractThe 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. JEL Classification: C53, C32, E37
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Date of creation: May 2005
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Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-04 (All new papers)
- NEP-ECM-2005-10-04 (Econometrics)
- NEP-FOR-2005-10-04 (Forecasting)
- NEP-MAC-2005-10-04 (Macroeconomics)
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