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On the applicability of dynamic factor models for forecasting real GDP growth in Armenia

Author

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  • Poghosyan, Karen

    (Central Bank of Armenia, Yerevan, Armenia)

  • Poghosyan, Ruben

    (Yerevan State University, Yerevan, Armenia)

Abstract

In this paper, we are trying to find out whether large-scale factor-augmented models can be successfully used for forecasting real GDP growth rate in Armenia. We compare the forecasting performance of factor-augmented models such as FAAR, FAVAR and Bayesian FAVAR with their small-scale benchmark counterpart models like AR, VAR and Bayesian VAR. Based on the ex-post out-of-sample recursive and rolling forecast evaluations and using RMSFE’s, we conclude that large-scale factor-augmented models outperform small-scale benchmark models. However, the differences in forecasts among the models are not statistically significant when we apply statistical test.

Suggested Citation

  • Poghosyan, Karen & Poghosyan, Ruben, 2021. "On the applicability of dynamic factor models for forecasting real GDP growth in Armenia," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 61, pages 28-46.
  • Handle: RePEc:ris:apltrx:0411
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    More about this item

    Keywords

    factor-augmented models; static and dynamic factors; recursive and rolling regression; out-of-sample forecast; RMSFE; Armenia;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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