Diffusion index-based inflation forecasts for the euro area
In: Empirical studies of structural changes and inflation
Diffusion indexes based on dynamic factors have recently been advocated by Stock and Watson (1998), and further used to perform forecasting tests by the same authors on US data. This technique is explored for the euro area using a multi-country data set and a broad array of variables, in order to test the inflation forecasting performance of extracted factors at the aggregate euro area level. First, a description of factors extracted from different data sets is performed using a number of different approaches. Conclusions reached are that nominal phenomena in the original variables might be well captured in-sample using the factor approach. Out-of-sample tests have more ambiguous interpretation, as factors seem to be good leading indicators of inflation, but the comparative advantage of the factors is less clear. Nevertheless, alternative indicators such as unemployment or money growth do not outperform them JEL Classification: C53, E31, E37
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by Bank for International Settlements in its series BIS Papers chapters with number
03-05.||Handle:|| RePEc:bis:bisbpc:03-05||Contact details of provider:|| Postal: Centralbahnplatz 2, CH - 4002 Basel|
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
References listed on IDEAS
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.:
- Forni, Mario & Lippi, Marco, 2001.
"The Generalized Dynamic Factor Model: Representation Theory,"
Cambridge University Press, vol. 17(06), pages 1113-1141, December.
- Forni, Mario & Lippi, Marco, 2000. "The Generalized Dynamic Factor Model: Representation Theory," CEPR Discussion Papers 2509, C.E.P.R. Discussion Papers.
- Danny Quah & Thomas J. Sargent, 1993. "A Dynamic Index Model for Large Cross Sections," NBER Chapters,in: Business Cycles, Indicators and Forecasting, pages 285-310 National Bureau of Economic Research, Inc.
- Danny Quah & Thomas J. Sargent, 1992. "A dynamic index model for large cross sections," Discussion Paper / Institute for Empirical Macroeconomics 77, Federal Reserve Bank of Minneapolis.
- Danny Quah & Thomas J. Sargent, 1993. "A Dynamic Index Model for Large Cross Sections," CEP Discussion Papers dp0132, Centre for Economic Performance, LSE.
- Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
- Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
- Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
- Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April.
- Ben S. Bernanke & Jean Boivin, 2001. "Monetary Policy in a Data-Rich Environment," NBER Working Papers 8379, National Bureau of Economic Research, Inc.
- Elena Angelini & Jérôme Henry & Ricardo Mestre, 2001. "A multi-country trend indicator for euro area inflation: computation and properties," BIS Papers chapters,in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 81-108 Bank for International Settlements.
- Angelini, Elena & Henry, Jérôme & Mestre, Ricardo, 2001. "A multi-country trend indicator for euro area inflation: computation and properties," Working Paper Series 0060, European Central Bank.
- Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
- Tom Doan, "undated". "RATS program to estimate observable index model from Sargent-Sims(1977)," Statistical Software Components RTZ00126, Boston College Department of Economics.
- 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.
- Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
- Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
- Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809.
- Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, September.
- James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
- Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2003. "Macroeconomic forecasting in the Euro area: Country specific versus area-wide information," European Economic Review, Elsevier, vol. 47(1), pages 1-18, February.
- Massimiliano Marcellino & James H. Stock & Mark W. Watson, "undated". "Macroeconomic Forecasting in the Euro Area: Country Specific versus Area-Wide Information," Working Papers 201, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Mario Forni & Lucrezia Reichlin, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 453-473.
- Mario Forni & Lucrezia Reichlin, 1998. "Let's get real: a factor analytical approach to disaggregated business cycle dynamics," ULB Institutional Repository 2013/10147, ULB -- Universite Libre de Bruxelles.
When requesting a correction, please mention this item's handle: RePEc:bis:bisbpc:03-05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.