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A Dynamic Factor Model for Current-Quarter Estimates of Economic Activity in Hong Kong

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Author Info

  • Stefan Gerlach

    (University of Basel and CEPR)

  • Matthew S. Yiu

    (Hong Kong Institute for Monetary Research)

Abstract

This paper applies the single-index dynamic factor model developed by Stock and Watson (1991) to construct current-quarter estimates of economic activity in Hong Kong. The Hang Seng index, a residential property price index, retail sales and total exports are used as coincident indicators. Principal Component Analysis is first used to obtain an impression of the common component of the indicator series. This component and the dynamic factor identified by the Stock-Watson methodology are strongly correlated and seem to account for economic fluctuations in Hong Kong reasonably well.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 162004.

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Length: 21 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:hkm:wpaper:162004

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Related research

Keywords: Business cycles; dynamic factor model; Kalman filtering;

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References

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  1. Harm Bandholz & Michael Funke, 2001. "In Search of Leading Indicators of Economic Activity in Germany," CESifo Working Paper Series 571, CESifo Group Munich.
  2. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
  3. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  4. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, December.
  5. Gerlach, Stefan & Yiu, Matthew S., 2004. "Estimating output gaps in Asia: A cross-country study," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 115-136, March.
  6. Garcia-Ferrer, Antonio & Poncela, Pilar, 2002. "Forecasting European GNP Data through Common Factor Models and Other Procedures," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(4), pages 225-44, July.
  7. n/a, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," NIESR Discussion Papers 149, National Institute of Economic and Social Research.
  8. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
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Cited by:
  1. Tak-Kuen Siu & Wai-Ki Ching & Eric Fung & Michael Ng, 2005. "Extracting Information from Spot Interest Rates and Credit Ratings using Double Higher-Order Hidden Markov Models," Computational Economics, Society for Computational Economics, vol. 26(3), pages 69-102, November.

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