Forecasting using heterogeneous panels with cross-sectional dependence

Oguzhan Akgun, Alain Pirotte and Giovanni Urga

International Journal of Forecasting, 2020, vol. 36, issue 4, 1211-1227

Abstract: In this paper, we focus on forecasting methods that use heterogeneous panels in the presence of cross-sectional dependence in terms of both spatial error dependence and common factors. We propose two main approaches to estimating the factor structure: a residuals-based approach, and an approach that uses a panel of auxiliary variables to extract the factors. Small sample properties of the proposed methods are investigated through Monte Carlo simulations and applied to predict house price inflation in OECD countries.

Keywords: Cross-sectional dependence; Common factors; Spatial dependence; House price inflation; Inflation forecasting; Macroeconomic forecasting (search for similar items in EconPapers)
Date: 2020
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Working Paper: Forecasting using heterogeneous panels with cross-sectional dependence (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:36:y:2020:i:4:p:1211-1227

DOI: 10.1016/j.ijforecast.2019.11.007

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