Next Article in Journal
Generalized Binary Time Series Models
Previous Article in Journal
Uniform Inference in Panel Autoregression
Open AccessArticle

Macroeconomic Forecasting with Factor-Augmented Adjusted Band Regression

1
Department of Statistics and Operations Research, University of Vienna, Oskar-Morgenstern-Platz 1, Vienna 1090, Austria
2
Institute for financial policy, Ministry of Finance, Stefanovicova 5, 81782 Bratislava, Slovakia
*
Author to whom correspondence should be addressed.
Econometrics 2019, 7(4), 46; https://doi.org/10.3390/econometrics7040046
Received: 20 June 2019 / Revised: 28 November 2019 / Accepted: 29 November 2019 / Published: 4 December 2019
Previous findings indicate that the inclusion of dynamic factors obtained from a large set of predictors can improve macroeconomic forecasts. In this paper, we explore three possible further developments: (i) using automatic criteria for choosing those factors which have the greatest predictive power; (ii) using only a small subset of preselected predictors for the calculation of the factors; and (iii) utilizing frequency-domain information for the estimation of the factor models. Reanalyzing a standard macroeconomic dataset of 143 U.S. time series and using the major measures of economic activity as dependent variables, we find that (i) is not helpful, whereas focusing on the low-frequency components of the factors and disregarding the high-frequency components can actually improve the forecasting performance for some variables. In the case of the gross domestic product, a combination of (ii) and (iii) yields the best results. View Full-Text
Keywords: dynamic factor models; model selection; shrinkage; targeted predictors; frequency domain dynamic factor models; model selection; shrinkage; targeted predictors; frequency domain
Show Figures

Figure 1

MDPI and ACS Style

Chudý, M.; Reschenhofer, E. Macroeconomic Forecasting with Factor-Augmented Adjusted Band Regression. Econometrics 2019, 7, 46.

Show more citation formats Show less citations formats
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

1
Back to TopTop