Interpolation and backdating with a large information set

Elena Angelini, Jerome Henry () and Massimiliano Marcellino

No 252, Working Paper Series from European Central Bank

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 recently. Nowadays large datasets are readily available, and models with hundreds of parameters 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 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 using actual macroeconomic series. Our method seems 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. JEL Classification: C32; C43; C82.

Keywords: Interpolation; factor model; Kalman filter; spline. (search for similar items in EconPapers)
Date: 2003-08
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Related works:
Working Paper: Interpolation and Backdating with A Large Information Set (2004)
Journal Article: Interpolation and backdating with a large information set (2006)
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