Macroeconomic forecasting using structural factor analysis Academic Article

abstract

• The use of a small number of underlying factors to summarize the information from a much larger set of information variables is one of the new frontiers in forecasting. In prior work, the estimated factors have not usually had a structural interpretation and the factors have not been chosen on a theoretical basis. In this paper we propose several variants of a general structural factor forecasting model, and use these to forecast certain key macroeconomic variables. We make the choice of factors more structurally meaningful by estimating factors from subsets of information variables, where these variables can be assigned to subsets on the basis of economic theory. We compare the forecasting performance of the structural factor forecasting model with that of a univariate AR model, a standard VAR model, and some non-structural factor forecasting models. The results suggest that our structural factor forecasting model performs significantly better in forecasting real activity variables, especially at short horizons. 2007 International Institute of Forecasters.

authors

• Jansen, Dennis

published proceedings

• INTERNATIONAL JOURNAL OF FORECASTING

author list (cited authors)

• Liu, D., & Jansen, D. W.

citation count

• 4

complete list of authors

• Liu, Dandan||Jansen, Dennis W

publication date

• January 2007

publisher

• Elsevier  Publisher

published in

• International Journal of Forecasting  Journal

keywords

• Econometric Models
• Forecast Evaluation
• Macroeconomic Forecasting
• Principal Components
• Time Series

Digital Object Identifier (DOI)

• 10.1016/j.ijforecast.2007.03.001

start page

• 655

end page

• 677

volume

• 23

issue

• 4

URL

• http://dx.doi.org/10.1016/j.ijforecast.2007.03.001