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A Dynamic Factor Model for Current-Quarter Estimates of Economic Activity in Hong Kong

  • Stefan Gerlach

    (University of Basel and CEPR)

  • Matthew S. Yiu

    (Hong Kong Institute for Monetary Research)

This paper applies the single-index dynamic factor model developed by Stock and Watson (1991) to construct current-quarter estimates of economic activity in Hong Kong. The Hang Seng index, a residential property price index, retail sales and total exports are used as coincident indicators. Principal Component Analysis is first used to obtain an impression of the common component of the indicator series. This component and the dynamic factor identified by the Stock-Watson methodology are strongly correlated and seem to account for economic fluctuations in Hong Kong reasonably well.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 162004.

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Length: 21 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:hkm:wpaper:162004
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  1. Harm Bandholz & Michael Funke, 2001. "In Search of Leading Indicators of Economic Activity in Germany," CESifo Working Paper Series 571, CESifo Group Munich.
  2. Francis X. Diebold & Glenn D. Rudebusch, 1994. "Measuring Business Cycles: A Modern Perspective," NBER Working Papers 4643, National Bureau of Economic Research, Inc.
  3. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
  4. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  5. Garcia-Ferrer, Antonio & Poncela, Pilar, 2002. "Forecasting European GNP Data through Common Factor Models and Other Procedures," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(4), pages 225-44, July.
  6. n/a, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," NIESR Discussion Papers 149, National Institute of Economic and Social Research.
  7. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, June.
  8. Gerlach, Stefan & Yiu, Matthew S., 2004. "Estimating output gaps in Asia: A cross-country study," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 115-136, March.
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