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

Author

Listed:
  • Stefan Gerlach

    (University of Basel and CEPR)

  • Matthew S. Yiu

    (Hong Kong Institute for Monetary Research)

Abstract

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.

Suggested Citation

  • Stefan Gerlach & Matthew S. Yiu, 2004. "A Dynamic Factor Model for Current-Quarter Estimates of Economic Activity in Hong Kong," Working Papers 162004, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:162004
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    File URL: http://www.hkimr.org/uploads/publication/246/ub_full_0_2_90_wp200416_text.pdf
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    References listed on IDEAS

    as
    1. Tatiana Kirsanova, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," National Institute of Economic and Social Research (NIESR) Discussion Papers 193, National Institute of Economic and Social Research.
    2. Michael Funke & Harm Bandholz, 2003. "In search of leading indicators of economic activity in Germany," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(4), pages 277-297.
    3. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
    4. repec:adr:anecst:y:1987:i:6-7 is not listed on IDEAS
    5. 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.
    6. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, January.
    7. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
    8. F. Javier Fernandez Macho & Andrew C. Harvey & James H. Stock, 1987. "Forecasting and Interpolation Using Vector Autoregressions with Common Trends," Annals of Economics and Statistics, GENES, issue 6-7, pages 279-287.
    9. 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.
    10. 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 225-244, July.
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    Citations

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    Cited by:

    1. Tak-Kuen Siu & Wai-Ki Ching & Eric Fung & Michael Ng, 2005. "Extracting Information from Spot Interest Rates and Credit Ratings using Double Higher-Order Hidden Markov Models," Computational Economics, Springer;Society for Computational Economics, vol. 26(3), pages 69-102, November.

    More about this item

    Keywords

    Business cycles; dynamic factor model; Kalman filtering;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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