Please use this identifier to cite or link to this item:
Cheung, Calista
Demers, Frédérick
Year of Publication: 
Series/Report no.: 
Bank of Canada Working Paper 2007,8
This paper evaluates the performance of static and dynamic factor models for forecasting Canadian real output growth and core inflation on a quarterly basis. We extract the common component from a large number of macroeconomic indicators, and use the estimates to compute out-of-sample forecasts under a recursive and a rolling scheme with different window sizes. Forecasts from factor models are compared with those from AR(p) models as well as IS- and Phillips-curve models. We find that factor models can improve the forecast accuracy relative to standard benchmark models, for horizons of up to 8 quarters. Forecasts from our proposed factor models are also less prone to committing large errors, in particular when the horizon increases. We further show that the choice of the sampling-scheme has a large influence on the overall forecast accuracy, with smallest rolling-window samples generating superior results to larger samples, implying that using limited-memory” estimators contribute to improve the quality of the forecasts.
Econometric and statistical methods
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
551.25 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.