Interpolation and Backdating with A Large Information Set

Elena Angelini, Jerome Henry () and Massimiliano Marcellino

No 4533, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Existing methods for data interpolation or backdating are either univariate or based on a very limited number of series, due to data and computing constraints that were binding until the recent past. Nowadays large datasets are readily available, and models with hundreds of parameters are fastly estimated. We model these large datasets with a factor model, and develop an interpolation method that exploits the estimated factors as an efficient summary of all the available information. The method is compared with existing standard approaches from a theoretical point of view, by means of Monte Carlo simulations, and also when applied to actual macroeconomic series. The results indicate that our method is more robust to model misspecification, although traditional multivariate methods also work well while univariate approaches are systematically outperformed. When interpolated series are subsequently used in econometric analyses, biases can emerge, depending on the type of interpolation but again be reduced with multivariate approaches, including factor-based ones.

Keywords: Factor model; Interpolation; Kalman filter; spline (search for similar items in EconPapers)
JEL-codes: C32 C43 C82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2004-10
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Related works:
Journal Article: Interpolation and backdating with a large information set (2006)
Working Paper: Interpolation and backdating with a large information set (2003)
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