This paper demonstrates that factor-based forecasts for key Australian macroeconomic series can outperform standard time-series benchmarks. In practice, however, the advantages of using large panels of data to construct the factors typically comes at the cost of using less timely series, thereby delaying when the forecasts can be made. To produce more timely forecasts it is possible to use a narrower data panel, though this will possibly result in less accurate factor estimates and so less accurate forecasts. We demonstrate this trade-off between accuracy and timeliness with out-of-sample forecasts. With the exception of only consumer price inflation, the forecasts do not become less accurate as they utilise less information by excluding less timely series. So while factor forecasts have large data requirements, we show that these should not prevent their practical use when timely forecasts are needed.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Find related papers by JEL classification: C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
This paper has been announced in the following NEP Reports:
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.)