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Short-term forecasts of French GDP: A dynamic factor model with targeted predictors

  • Bessec, Marie

In recent years, factor models have received increasing attention from both econometricians and practitioners in the forecasting of macroeconomic variables. In this context, Bai and Ng (2008) find an improvement in selecting indicators according to the forecast variable prior to factor estimation (targeted predictors). In particular, they propose using the LARS-EN algorithm to remove irrelevant predictors. In this paper, we adapt the Bai and Ng procedure to a setup in which data releases are delayed and staggered. In the pre-selection step, we replace actual data with estimates obtained on the basis of past information, where the structure of the available information replicates the one a forecaster would face in real time. We estimate on the reduced dataset the dynamic factor model of Giannone, Reichlin and Small (2008) and Doz, Giannone and Reichlin (2011), which is particularly suitable for the very short-term forecast of GDP. A pseudo real-time evaluation on French data shows the potential of our approach.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/10079.

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Date of creation: Sep 2013
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Publication status: Published in Journal of Forecasting, 2013, Vol. 32, no. 6. pp. 500-511.Length: 11 pages
Handle: RePEc:dau:papers:123456789/10079
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  1. Barhoumi, K. & Brunhes-Lesage, V. & Darné, O. & Ferrara, L. & Pluyaud, B. & Rouvreau, B., 2008. "Monthly forecasting of French GDP: A revised version of the OPTIM model," Working papers 222, Banque de France.
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  5. Catherine Doz & Domenico Giannone & Lucrezia Reichlin, 2011. "A two-step estimator for large approximate dynamic factor models based on Kalman filtering," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00638009, HAL.
  6. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2008. "Nowcasting: The real-time informational content of macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 665-676, May.
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  15. Catherine Mathieu & Christine Rifflart & Hervé Péléraux & Mathieu Plane & Christophe Blot & Eric Heyer & Frédéric Reynès & Eric Heyer & Marion Cochard & Matthieu Lemoine & Paola Veroni & Amel Falah & , 2008. "France : entrée dans le tunnel ? Scénarios 2008-2009 pour l'économie française," Sciences Po publications info:hdl:2441/7641, Sciences Po.
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