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A sorted leading indicators dynamic (SLID) factor model for short-run euro-area GDP forecasting

  • Daniel Grenouilleau
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    This paper introduces a statistical model for short-term GDP forecasting based on approximate dynamic factors, Stock and Watson methodology, extracted from a very large number of leading indicators at several lags. Given that factor extraction is performed on many series from all countries of the euro area, the common component to all predictors reflects the overall business cycle of the euro area and can accordingly provide a good proxy for euro area GDP.

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    File URL: http://ec.europa.eu/economy_finance/publications/publication516_en.pdf
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    Paper provided by Directorate General Economic and Financial Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 219.

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    Length: 46 pages
    Date of creation: Dec 2004
    Date of revision:
    Handle: RePEc:euf:ecopap:0219
    Contact details of provider: Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
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    Web page: http://ec.europa.eu/economy_finance/index_en.htm
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    1. 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.
    2. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
    3. Franck Sédillot & Nigel Pain, 2003. "Indicator Models of Real GDP Growth in Selected OECD Countries," OECD Economics Department Working Papers 364, OECD Publishing.
    4. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2005. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 830-840, September.
    5. James H. Stock & Mark W. Watson, 1988. "A Probability Model of The Coincident Economic Indicators," NBER Working Papers 2772, National Bureau of Economic Research, Inc.
    6. Forni, Mario, et al, 2001. "Coincident and Leading Indicators for the Euro Area," Economic Journal, Royal Economic Society, vol. 111(471), pages C62-85, May.
    7. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
    8. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
    9. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
    10. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
    11. Connor, Gregory & Korajczyk, Robert A, 1993. " A Test for the Number of Factors in an Approximate Factor Model," Journal of Finance, American Finance Association, vol. 48(4), pages 1263-91, September.
    12. Banerjee, Anindya & Marcellino, Massimiliano & Masten, Igor, 2003. "Leading Indicators for Euro Area Inflation and GDP Growth," CEPR Discussion Papers 3893, C.E.P.R. Discussion Papers.
    13. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
    14. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
    15. Boivin, Jean & Ng, Serena, 2006. "Are more data always better for factor analysis?," Journal of Econometrics, Elsevier, vol. 132(1), pages 169-194, May.
    16. 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.
    17. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
    18. Marc Brisson & Bryan Campbell & John Galbraith, 2001. "Forecasting Some Low-Predictability Time Series Using Diffusion Indices," CIRANO Working Papers 2001s-46, CIRANO.
    19. Elena Angelini & Jérôme Henry & Ricardo Mestre, 2001. "Diffusion index-based inflation forecasts for the euro area," BIS Papers chapters, in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 109-138 Bank for International Settlements.
    20. Víctor Gómez & Agustín Maravall, 1998. "Automatic Modeling Methods for Univariate Series," Banco de Espa�a Working Papers 9808, Banco de Espa�a.
    21. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
    22. Seitz, Franz & Brand, Claus & Reimers, Hans-Eggert, 2003. "Forecasting real GDP: what role for narrow money?," Working Paper Series 0254, European Central Bank.
    23. Filippo Altissimo & Antonio Bassanetti & Riccardo Cristadoro & Mario Forni & Marco Lippi & Lucrezia Reichlin & Giovanni Veronese, 2001. "A real time coincident indicator of the euro area business cycle," Temi di discussione (Economic working papers) 436, Bank of Italy, Economic Research and International Relations Area.
    24. n/a, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," NIESR Discussion Papers 149, National Institute of Economic and Social Research.
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