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Are more data always better for factor analysis? Results for the euro area, the six largest euro area countries and the UK

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  • Caggiano, Giovanni
  • Kapetanios, George
  • Labhard, Vincent

Abstract

Factor based forecasting has been at the forefront of developments in the macroeconometric forecasting literature in the recent past. Despite the flurry of activity in the area, a number of specification issues such as the choice of the number of factors in the forecasting regression, the benefits of combining factor-based forecasts and the choice of the dataset from which to extract the factors remain partly unaddressed. This paper provides a comprehensive empirical investigation of these issues using data for the euro area, the six largest euro area countries, and the UK. JEL Classification: C10, C15, C53

Suggested Citation

  • Caggiano, Giovanni & Kapetanios, George & Labhard, Vincent, 2009. "Are more data always better for factor analysis? Results for the euro area, the six largest euro area countries and the UK," Working Paper Series 1051, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20091051
    Note: 360650
    as

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    References listed on IDEAS

    as
    1. Hansen, Bruce E., 2008. "Least-squares forecast averaging," Journal of Econometrics, Elsevier, vol. 146(2), pages 342-350, October.
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    Keywords

    factors; forecast combinations; large datasets;
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