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Forecasting with nonstationary dynamic factor models [An article from: Journal of Econometrics]
Book Details
Author(s)D. Pena, P. Poncela
PublisherElsevier
ISBN / ASINB000RR1604
ISBN-13978B000RR1603
AvailabilityAvailable for download now
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Journal of Econometrics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
In this paper we analyze the structure and the forecasting performance of the dynamic factor model. It is shown that the forecasts obtained by the factor model imply shrinkage pooling terms, similar to the ones obtained from hierarchical Bayesian models that have been applied successfully in the econometric literature. Thus, the results obtained in this paper provide an additional justification for these and other types of pooling procedures. The expected decrease in MSE for using a factor model versus univariate ARIMA and shrinkage models are studied for the one factor model. Monte Carlo simulations are presented to illustrate this result. A factor model is also built to forecast GNP of European countries and it is shown that the factor model can provide a substantial improvement in forecasts with respect to both univariate and shrinkage univariate forecasts.
Description:
In this paper we analyze the structure and the forecasting performance of the dynamic factor model. It is shown that the forecasts obtained by the factor model imply shrinkage pooling terms, similar to the ones obtained from hierarchical Bayesian models that have been applied successfully in the econometric literature. Thus, the results obtained in this paper provide an additional justification for these and other types of pooling procedures. The expected decrease in MSE for using a factor model versus univariate ARIMA and shrinkage models are studied for the one factor model. Monte Carlo simulations are presented to illustrate this result. A factor model is also built to forecast GNP of European countries and it is shown that the factor model can provide a substantial improvement in forecasts with respect to both univariate and shrinkage univariate forecasts.
