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The Forcasting Performance of Dynamic Factor Models with Vintage Data

Luca Di Bonaventura, Mario Forni () and Francesco Pattarin

No 13034, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We present a comparative analysis of the forecasting performance of two dynamic factor models, the Stock and Watson (2002a, b) model and the Forni, Hallin, Lippi and Reichlin (2005) model, based on vintage data. Our dataset contains 107 monthly US "first release" macroeconomic and financial vintage time series, spanning the 1996:12 to 2017:6 period with monthly periodicity, extracted from the Bloomberg database. We compute real-time one-month-ahead forecasts with both models for four key macroeconomic variables: the month-on-month change in industrial production, the unemployment rate, the core consumer price index and the ISM Purchasing Managers' Index. First, we find that both the Stock and Watson and the Forni, Hallin, Lippi and Reichlin models outperform simple autoregressions for industrial production, unemployment rate and consumer prices, but that only the first model does so for the PMI. Second, we find that neither models always outperform the other. While Forni, Hallin, Lippi and Reichlin's beats Stock and Watson's in forecasting industrial production and consumer prices, the opposite happens for the unemployment rate and the PMI.

Keywords: Dynamic factor models; First release data; Forecasting; Forecasting Performance; Vintage data (search for similar items in EconPapers)
JEL-codes: C01 C32 C52 C53 E27 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-for and nep-mac
Date: 2018-07
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