Are More Data Always Better for Factor Analysis' Results for the Euro Area, the Six Largest Euro Area Countries and the UK

Caggiano, Giovanni; Kapetanios, George; Labhard, Vincent

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Are More Data Always Better for Factor Analysis' Results for the Euro Area, the Six Largest Euro Area Countries and the UK

ECB Working Paper No. 1051

39 Pages Posted: 13 May 2009

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padova

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics

Date Written: May 13, 2009

Abstract

Factor based forecasting has been at the forefront of developments in the macro-econometric forecasting literature in the recent past. Despite the flurry of activity in the area, a number of specification issues such as the choice of the number of factors in the forecasting regression, the benefits of combining factor-based forecasts and the choice of the dataset from which to extract the factors remain partly unaddressed. This paper provides a comprehensive empirical investigation of these issues using data for the euro area, the six largest euro area countries, and the UK.

Keywords: Factors, Large Datasets, Forecast Combinations

JEL Classification: C100, C150, C530

Suggested Citation: Suggested Citation

Caggiano, Giovanni and Kapetanios, George and Labhard, Vincent, Are More Data Always Better for Factor Analysis' Results for the Euro Area, the Six Largest Euro Area Countries and the UK (May 13, 2009). ECB Working Paper No. 1051, Available at SSRN: https://ssrn.com/abstract=1393646