Comparing Alternative Predictors Based on Large-Panel Factor Models

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

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Multiple version iconThere 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

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

Antonello D'Agostino

European Stability Mechanism ( email )

6a Circuit de la Foire Internationale
L-1347
Luxembourg

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department ( email )

Dame Street
P.O. Box 559
Dublin 2
Ireland

Domenico Giannone (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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