Forecasting Inflation and GDP growth: Comparison of Automatic Leading Indicator (ALI) Method with Macro Econometric Structural Models (MESMs)
This paper compares forecast performance of the ALI method and the MESMs and seeks ways of improving the ALI method. Inflation and GDP growth form the forecast objects for comparison, using data from China, Indonesia and the Philippines. The ALI method is found to produce better forecasts than those by MESMs in general, but the method is found to involve greater uncertainty in choosing indicators, mixing data frequencies and utilizing unrestricted VARs. Two possible improvements are found helpful to reduce the uncertainty: (i) give theory priority in choosing indicators and include theory-based disequilibrium shocks in the indicator sets; and (ii) reduce the VARs by means of the general→specific model reduction procedure.
|Date of creation:||Mar 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0) 20 7882 5096
Fax: +44 (0) 20 8983 3580
Web page: http://www.econ.qmul.ac.uk
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cagas, Marie Anne & Ducanes, Geoffrey & Magtibay-Ramos, Nedelyn & Qin, Duo & Quising, Pilipinas, 2006. "A small macroeconometric model of the Philippine economy," Economic Modelling, Elsevier, vol. 23(1), pages 45-55, January.
- Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2005.
"Leading Indicators for Euro-area Inflation and GDP Growth,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 67(s1), pages 785-813, December.
- Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2003. "Leading Indicators for Euro-area Inflation and GDP Growth," Working Papers 235, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- 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.
- George Kapetanios, 2002. "Factor Analysis Using Subspace Factor Models: Some Theoretical Results and an Application to UK Inflation Forecasting," Working Papers 466, Queen Mary University of London, School of Economics and Finance.
- Michael P. Clements & David F. Hendry, 2002. "Modelling methodology and forecast failure," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 319-344, 06.
- n/a, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," NIESR Discussion Papers 149, National Institute of Economic and Social Research.
- Forni, Mario & Giannone, Domenico & Lippi, Marco & Reichlin, Lucrezia, 2009.
"Opening The Black Box: Structural Factor Models With Large Cross Sections,"
Cambridge University Press, vol. 25(05), pages 1319-1347, October.
- Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2008. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Working Papers ECARES 2008_036, ULB -- Universite Libre de Bruxelles.
- Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2007. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Center for Economic Research (RECent) 008, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
- Forni, Mario & Giannone, Domenico & Lippi, Marco & Reichlin, Lucrezia, 2007. "Opening the black box: structural factor models with large cross-sections," Working Paper Series 0712, European Central Bank.
- Alexei Onatski, 2005.
"Determining the number of factors from empirical distribution of eigenvalues,"
0405-19, Columbia University, Department of Economics.
- Alexei Onatski, 2010. "Determining the Number of Factors from Empirical Distribution of Eigenvalues," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 1004-1016, November.
When requesting a correction, please mention this item's handle: RePEc:qmw:qmwecw:wp554. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nick Vriend)
If references are entirely missing, you can add them using this form.