Diffusion Index Models and Index Proxies: Recent Results and New Directions

Norman Swanson () and Nii Ayi Armah ()
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Nii Ayi Armah: Bank of Canada

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: Diffusion index models have received considerable attention from both theoreticians and empirical econometricians in recent years. One reason for this is that datasets with many variables are increasingly becoming available and being utilized for economic modelling, and another is that common factors are often assumed to underlie the co-movements of a set of macroeconomic variables. In this paper we review some recent results in the study of diffusion index models, focusing primarily on advances due to [4, 5] and [1]. We discuss, for example, the construction of factors used in prediction models implemented using diffusion index methodology and approaches that are useful for assessing whether there are observable variables that adequately “proxy” for estimated factors.

Keywords: diffusion index , factor, forecast; macroeconometrics, parameter estimation error, proxy (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-05-15
New Economics Papers: this item is included in nep-for
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201114

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