Comparing Alternative Predictors Based on Large-Panel Factor Models

D'Agostino, Antonello; Giannone, Domenico

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Comparing Alternative Predictors Based on Large-Panel Factor Models

CEPR Discussion Paper No. DP6564

38 Pages Posted: 6 Jun 2008

See all articles by Antonello D'Agostino

Antonello D'Agostino

European Stability Mechanism; Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department

Domenico Giannone

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written: November 2007

Abstract

This paper compares the predictive ability of the factor models of Stock and Watson (2002) and Forni, Hallin, Lippi, and Reichlin (2005) using a large panel of US macroeconomic variables. We propose a nesting procedure of comparison that clarifies and partially overturns the results of similar exercises in the literature. Our main conclusion is that for the dataset at hand the two methods have a similar performance and produce highly collinear forecasts.

Keywords: Factor Models, Forecasting, Large Cross-Section

JEL Classification: C31, C52, C53

Suggested Citation: Suggested Citation

D'Agostino, Antonello and Giannone, Domenico, Comparing Alternative Predictors Based on Large-Panel Factor Models (November 2007). CEPR Discussion Paper No. DP6564, Available at SSRN: https://ssrn.com/abstract=1140091