Economics at your fingertips  

On the Applicability of Dynamic Factor Models for Forecasting Real GDP Growth in Armenia

Karen Poghosyan and Ruben Poghosyan
Additional contact information
Ruben Poghosyan: Yerevan State University, Faculty of Physics, Yerevan, Armenia

Czech Journal of Economics and Finance (Finance a uver), 2021, vol. 71, issue 1, 52-79

Abstract: In this paper, we are trying to find out whether large-scale factor-augmented models can be successfully employed for forecasting real GDP growth rate in Armenia. We use Armenian data because as a developing country Armenia has experienced a relatively higher volatility of GDP growth rate in comparison to other countries. Based on our calculation using growth rate data from 40 countries, we argue that low-income countries have about 57% higher volatility of growth rates than high-income countries. Taking this into account, it is worth testing the forecasting performance of factor models on a country like Armenia to check the applicability of the advanced forecasting methods to economies with highly volatile growth rates. For this, we compare the forecasting performance of factor-augmented models such as FAAR, FAVAR and Bayesian FAVAR with their small-scale benchmark counterpart models like AR, VAR, Bayesian VAR and mixed-frequency VAR. Based on the ex-post out-of-sample recursive and rolling forecast evaluations and using RMSFE’s, we conclude that large-scale factor-augmented models outperform small-scale benchmark models when we apply these methods to forecasting real GDP growth. However, the differences in forecasts among the models are not statistically significant when we apply statistical test.

Keywords: factor-augmented models; static and dynamic factors; recursive and rolling regression; out-of-sample forecast; RMSFE; Armenia (search for similar items in EconPapers)
JEL-codes: C11 C13 C52 C53 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Journal Article: On the applicability of dynamic factor models for forecasting real GDP growth in Armenia (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().

Page updated 2023-06-15
Handle: RePEc:fau:fauart:v:71:y:2021:i:1:p:52-79