The Role of Country-Specific Trade and Survey Data in Forecasting Euro Area Manufacturing Production: Perspective from Large Panel Factor Models

38 Pages Posted: 19 May 2008

See all articles by Laurent Maurin

Laurent Maurin

European Central Bank (ECB) - Directorate General Economics

Matthieu Darracq Paries

European Central Bank (ECB)

Date Written: May 2008

Abstract

Several factor-based models are estimated to investigate the role of country-specific trade and survey data in forecasting euro area manufacturing production. Following Boivin and Ng (2006), the emphasis is put on the role of dataset selection on the empirical performance of factor models. First, spectral analysis is used to assess the information content for euro area manufacturing production of external trade and surveys data of the three largest economies as well as two medium-sized highly opened economies. Second, common factors are estimated on four datasets, following two methodologies, Stock and Watson (2002a, 2002b) and Forni et al. (2005). Third, a rolling out of sample forecast comparison exercise is carried out on nine models. Compared to univariate benchmarks, our results are supportive of factor-based models up to two quarters. They show that incorporating survey and external trade information improves the forecast of manufacturing production. They also confirm the findings of Marcellino, Stock and Watson (2003) that, using country information, it is possible to improve forecasts for the euro area. Interesting, the medium-sized highly opened economies provide valuable information to monitor area wide developments, beyond their weight in the aggregate. Conversely, the large countries do not add much to the monitoring of the aggregate, when considered separately.

Keywords: Factor models, Dataset, Forecasting

JEL Classification: E37, C3, C53

Suggested Citation

Maurin, Laurent and Darracq Paries, Matthieu, The Role of Country-Specific Trade and Survey Data in Forecasting Euro Area Manufacturing Production: Perspective from Large Panel Factor Models (May 2008). ECB Working Paper No. 894, Available at SSRN: https://ssrn.com/abstract=1120700 or http://dx.doi.org/10.2139/ssrn.1120700

Laurent Maurin

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Matthieu Darracq Paries (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+496913446631 (Phone)
+496913447604 (Fax)

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