Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152916
Authors: 
Banerjee, Anindya
Marcellino, Massimiliano
Masten, Igor
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper 482
Abstract: 
The accession of ten countries into the European Union makes the forecasting of their key macroeconomic indicators an exercise of some importance. Because of the transition period, only short spans of reliable time series are available, suggesting the adoption of simple time series models as forecasting tools. However, despite this constraint on the span of data, a large number of macroeconomic variables (for a given time span) are available, making the class of dynamic factor models a reasonable alternative forecasting tool. The relative performance of these two forecasting approaches is compared by using data for five new Member States. The role of Euro-area information for forecasting and the usefulness of robustifying techniques such as intercept corrections are also evaluated. We find that factor models work well in general, although with marked differences across countries. Robustifying techniques are useful in a few cases, while Euro-area information is virtually irrelevant.
Subjects: 
Factor models
forecasts
new Member States
time series models
JEL: 
C53
C32
E37
Document Type: 
Working Paper

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