Factor Models for Non-Stationary Series: Estimates of Monthly U.S. GDP
Martina Hengge () and
Seton Leonard ()
Additional contact information
Seton Leonard: IHEID, The Graduate Institute of International and Development Studies, Geneva
No 13-2017, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies
This paper presents a novel dynamic factor model for non-stationary data. We begin by constructing a simple dynamic stochastic general equilibrium growth model and show that we can represent and estimate the model using a simple linear-Gaussian (Kalman) filter. Crucially, consistent estimation does not require differencing the data despite it being cointegrated of order 1. We then apply our approach to a mixed frequency model which we use to estimate monthly U.S. GDP from May 1969 to January 2017 using 171 series with an emphasis on housing related data. We suggest our estimates may, at a quarterly rate, in fact be more accurate than measurement error prone observations. Finally, we use our model to construct pseudo real-time GDP nowcasts over the 2007 to 2009 financial crisis. This last exercise shows that a GDP index, as opposed to real time estimates of GDP itself, may be more helpful in highlighting changes in the state of the macroeconomy.
Keywords: Forecasting; Factor model: Large data sets; Mixed frequency data; Nowcasting; Non-stationarity; Real-time data (search for similar items in EconPapers)
JEL-codes: C33 C53 E27 E52 (search for similar items in EconPapers)
Pages: 51 pages
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
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:gii:giihei:heidwp13-2017
Access Statistics for this paper
More papers in IHEID Working Papers from Economics Section, The Graduate Institute of International Studies Contact information at EDIRC.
Bibliographic data for series maintained by Dorina Dobre ().