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Forecasting Euro-Area Macroeconomic Variables Using a Factor Model Approach for Backdating

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  • Ralf Brüggemann
  • Jing Zeng

Abstract

type="main" xml:id="obes12053-abs-0001"> We suggest to use a factor model based backdating procedure to construct historical Euro-area macroeconomic time series data for the pre-Euro period. We argue that this is a useful alternative to standard contemporaneous aggregation methods. The article investigates for a number of Euro-area variables whether forecasts based on the factor-backdated data are more precise than those obtained with standard area-wide data. A recursive pseudo-out-of-sample forecasting experiment using quarterly data is conducted. Our results suggest that some key variables (e.g. real GDP, inflation and long-term interest rate) can indeed be forecasted more precisely with the factor-backdated data.

Suggested Citation

  • Ralf Brüggemann & Jing Zeng, 2015. "Forecasting Euro-Area Macroeconomic Variables Using a Factor Model Approach for Backdating," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 22-39, February.
    • Handle: RePEc:bla:obuest:v:77:y:2015:i:1:p:22-39
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    File URL: http://hdl.handle.net/10.1111/obes.2015.77.issue-1
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

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