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Markov-switching dynamic factor models in real time

Author

Listed:
  • Maximo Camacho

    (Universidad de Murcia)

  • Gabriel Perez-Quiros

    (Banco de España and CEPR)

  • Pilar Poncela

    (Universidad Autónoma de Madrid)

Abstract

We extend the Markov-switching dynamic factor model to account for some of the specificities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as ragged edges and mixed frequencies. We examine the theoretical benefits of this extension and corroborate the results through several Monte Carlo simulations. Finally, we assess its empirical reliability to compute real-time inferences of the US business cycle.

Suggested Citation

  • Maximo Camacho & Gabriel Perez-Quiros & Pilar Poncela, 2012. "Markov-switching dynamic factor models in real time," Working Papers 1205, Banco de España.
    • Handle: RePEc:bde:wpaper:1205
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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