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Forecast Accuracy of Small and Large Scale Dynamic Factor Models in Developing Economies

Author

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  • Germán López

    () (Universidad de Alicante)

Abstract

This paper compares forecast accuracy of two Dynamic Factor Models in a context of constraints in terms of data availability. Estimation technique and properties of the factor decomposition depend on the cross section dimension of the dataset included in each model: a large dataset composed by series belonging to seven broad categories or a small dataset with a few prescreened variables. Short term outof-sample forecast of GDP growth is carried out with both models reproducing the real time situation of data accessibility derived from the publication lags of the series in six Latin American countries.Results show i) the important role of the inclusion of latest released data in the forecast accuracy of both models, ii) the better precision of predictions based on factors with respect to autoregressive models and iii) identify the most adequate model for each of these six countries in different temporal horizons.

Suggested Citation

  • Germán López, 2015. "Forecast Accuracy of Small and Large Scale Dynamic Factor Models in Developing Economies," Working Papers. Serie AD 2015-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2015-03
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2015-03.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Factor models; nowcast; forecast; real time; developing economies;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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