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Factor Model Forecasts for New Zealand

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  • Matheson, Troy D

Abstract

This paper focuses on forecasting four key New Zealand macroeconomic variables using a dynamic factor model and a large number of predictors. We compare the (simulated) real-time forecasting performance of the factor model with a variety of other time-series models (including the Reserve Bank of New Zealand’s published forecasts), and we gauge the sensitivity of our results to alternative variable-selection algorithms. We find that the factor model performs particularly well at longer horizons.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 807.

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Date of creation: 13 Apr 2006
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Publication status: Published in International Journal of Central Banking Number 2.Volume(2006): pp. 169-237
Handle: RePEc:pra:mprapa:807

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  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 703-08, May.
  2. 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.
  3. Forni, Mario, et al, 2001. "Coincident and Leading Indicators for the Euro Area," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(471), pages C62-85, May.
  4. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
  5. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(3), pages 253-63, July.
  6. Michael Artis & Anindya Banerjee & Massimiliano Marcellino, . "Factor forecasts for the UK," Working Papers 203, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, Elsevier, vol. 132(1), pages 169-194, May.
  8. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2004. "The generalised dynamic factor model: consistency and rates," ULB Institutional Repository 2013/10133, ULB -- Universite Libre de Bruxelles.
  9. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 293-335, October.
  10. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  11. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: preparing economic projections," Reserve Bank of New Zealand Discussion Paper Series G98/7, Reserve Bank of New Zealand.
  12. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(2), pages 147-62, April.
  13. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1504, Econometric Society.
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Cited by:
  1. Eickmeier, Sandra & Ng, Tim, 2009. "Forecasting national activity using lots of international predictors: an application to New Zealand," Discussion Paper Series 1: Economic Studies 2009,11, Deutsche Bundesbank, Research Centre.
  2. Eliana González & Luis F. Melo & Viviana Monroy & Brayan Rojas, 2009. "A Dynamic Factor Model For The Colombian Inflation," BORRADORES DE ECONOMIA 005273, BANCO DE LA REPÚBLICA.
  3. Giannone, Domenico & Matheson, Troy, 2007. "A New Core Inflation Indicator for New Zealand," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6469, C.E.P.R. Discussion Papers.
  4. Davor Kunovac, 2007. "Factor Model Forecasting of Inflation in Croatia," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 31(4), pages 371-393.
  5. Poghosyan, K., 2012. "Structural and reduced-form modeling and forecasting with application to Armenia," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5590845, Tilburg University.
  6. Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2008. "Forecasting Macroeconomic Variables Using Diffusion Indexes in Short Samples with Structural Change," Economics Working Papers, European University Institute ECO2008/17, European University Institute.
  7. Pang, Iris Ai Jao, 2010. "Forecasting Hong Kong economy using factor augmented vector autoregression," MPRA Paper 32495, University Library of Munich, Germany.
  8. Viktors Ajevskis & Gundars Davidsons, 2008. "Dynamic Factor Models in Forecasting Latvia's Gross Domestic Product," Working Papers, Latvijas Banka 2008/02, Latvijas Banka.
  9. Chris Bloor & Troy Matheson, 2009. "Real-time conditional forecasts with Bayesian VARs: An application to New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2009/02, Reserve Bank of New Zealand.
  10. Lombardi, Marco J. & Maier, Philipp, 2011. "Forecasting economic growth in the euro area during the Great Moderation and the Great Recession," Working Paper Series, European Central Bank 1379, European Central Bank.
  11. 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, Central Bank of Chile, vol. 15(3), pages 84-95, December.
  12. Milena Lipovina-Božović, 2013. "A Comparison Of The Var Model And The Pc Factor Model In Forecasting Inflation In Montenegro," Economic Annals, Faculty of Economics, University of Belgrade, vol. 58(198), pages 115-136, July - Se.
  13. Michael Ryan & Kam Leong Szeto, 2009. "An Introduction to the New Zealand Treasury Model," Treasury Working Paper Series 09/02, New Zealand Treasury.

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