Forecasting macroeconomic variables for the new member states of the European Union

Massimiliano Marcellino, Anindya Banerjee and Igor Masten

No 482, Working Paper Series from European Central Bank

Abstract: The accession of ten countries into the European Union makes the forecasting of their key macroeconomic indicators an exercise of some importance. Because of the transition period, only short spans of reliable time series are available, suggesting the adoption of simple time series models as forecasting tools. However, despite this constraint on the span of data, a large number of macroeconomic variables (for a given time span) are available, making the class of dynamic factor models a reasonable alternative forecasting tool. The relative performance of these two forecasting approaches is compared by using data for five new Member States. The role of Euro-area information for forecasting and the usefulness of robustifying techniques such as intercept corrections are also evaluated. We find that factor models work well in general, although with marked differences across countries. Robustifying techniques are useful in a few cases, while Euro-area information is virtually irrelevant. JEL Classification: C53, C32, E37

Keywords: factor models; forecasts; new Member States; time series models (search for similar items in EconPapers)
Date: 2005-05
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Citations: View citations in EconPapers (13)

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