FaMIDAS: A Mixed Frequency Factor Model with MIDAS Structure

Abstract

In this paper a dynamic factor model with mixed frequency is proposed (FaMIDAS), where the past observations of high frequency indicators are used following the MIDAS approach. This structure is able to represent with richer dynamics the information content of the economic indicators and produces smoothed factors and forecasts. In addition, the Kalman filter is applied, which is particularly suited for dealing with unbalanced data set and revisions in the preliminary data. In the empirical application for the Italian quarterly GDP the short-term forecasting performance is evaluated against other mixed frequency models in a pseudo-real time experiment, also allowing for pooled forecast from factor models.

Keywords: mixed frequency models, dynamic factor models, MIDAS, forecasting

JEL Classification: E32, E37, C53