Forecasting Large Datasets with Conditionally Heteroskedastic Dynamic Common Factors
Lucia Alessi (),
Matteo Barigozzi and
Marco Capasso ()
No 2009_005, Working Papers ECARES from ULB -- Universite Libre de Bruxelles
We propose a new method for multivariate forecasting which combines Dynamic Factor and multivariate GARCH models. We call the model Dynamic Factor GARCH, as the information contained in large macroeconomic or financial datasets is captured by a few dynamic common factors, which we assume being conditionally heteroskedastic. After describing the estimation of the model, we present simulation results and carry out two empirical applications on financial asset returns and macroeconomic series, with a particular focus on different measures of inflation. Our proposed model outperforms the benchmarks in forecasting the conditional volatility of returns and the inflation level. Moreover, it allows to predict conditional covariances of all the time series in the panel.
Keywords: Dynamic factors; multivariate GARCH; covolatility forecasting; inflation forecasting (search for similar items in EconPapers)
JEL-codes: C52 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for and nep-ore
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
https://dipot.ulb.ac.be/dspace/bitstream/2013/5411 ... _wpaper_2009_005.pdf RePEc_eca_wpaper_2009_005 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eca:wpaper:2009_005
Access Statistics for this paper
More papers in Working Papers ECARES from ULB -- Universite Libre de Bruxelles Contact information at EDIRC.
Bibliographic data for series maintained by Benoit Pauwels ().