Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/128590 
Year of Publication: 
2015
Series/Report no.: 
ADB Economics Working Paper Series No. 471
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
We produce predictions of the current state of the Indonesian economy by estimating a Dynamic Factor Model on a dataset of 11 indicators (also followed closely by market operators) over the time period 2002 to 2014. Besides the standard difficulties associated with constructing timely indicators of current economic conditions, Indonesia presents additional challenges typical to emerging market economies where data are often scant and unreliable. By means of a pseudo-real-time forecasting exercise we show that our model outperforms univariate benchmarks, and it does comparably with predictions of market operators. Finally, we show that when quality of data is low, a careful selection of indicators is crucial for better forecast performance.
Subjects: 
Dynamic Factor Models
emerging market economies
nowcasting
JEL: 
C32
C53
E37
O53
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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