Forecasting Euro-Area Macroeconomic Variables Using a Factor Model Approach for Backdating

Ralf Brüggemann and Jing Zeng ()
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Jing Zeng: University of Konstanz, Department Economics, Germany

No 2012-15, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: We suggest to use a factor model based backdating procedure to construct historical Euro-area macroeconomic time series data for the pre-Euro period. We argue that this is a useful alternative to standard contemporaneous aggregation methods. The paper investigates for a number of Euro-area variables whether forecasts based on the factor-backdated data are more precise than those obtained with standard area-wide data. A recursive pseudo-out-of-sample forecasting experiment using quarterly data is conducted. Our results suggest that some key variables (e.g. real GDP, inflation and long-term interest rate) can indeed be forecasted more precisely with the factor-backdated data.

Keywords: forecasting; factor model; backdating; European monetary union; constructing EMU data (search for similar items in EconPapers)
JEL-codes: C22 C43 C53 C82 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-08-02
New Economics Papers: this item is included in nep-for and nep-mac
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Journal Article: Forecasting Euro-Area Macroeconomic Variables Using a Factor Model Approach for Backdating (2015)
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