9/2007 Christian Schulz. Forecasting economic growth for Estonia: Application of common factor methodologies
Working Papers of Eesti Pank. No 9/2007
In this paper, the application of two different unobserved factor models to a data set from Estonia is presented. The small-scale state-space model used by Stock and Watson (1991) and the large-scale static principal components model used by Stock and Watson (2002) are employed to derive common factors. Subsequently, using these common factors, forecasts of real economic growth for Estonia are performed and evaluated against benchmark models for different estimation and forecasting periods. Results show that both methods show improvements over the benchmark model, but not for the all the forecasting periods.
JEL Code: C53, C22, C32, F43
Key words: Estonia, forecasting, principal components, state-space model, forecast performance
Author's e-mail address: Schulz.Christian [at] bcg.com
The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.
- 1. Introduction
- 2. Specific features of the Estonian economy
- 3. Identification of leading time series
- 4. Common factor methodologies
- 4.1. The state-space model
- 4.2. Static principal components
- 5. Forecast comparison
- 6. Conclusions
- Appendix 1. Data set and cross correlations
- Appendix 2. Principal components: time series included
Forecasting Economic Growth for Estonia: Application of Common Factor Methodologies, Working Papers of Eesti Pank No 9/2007 (PDF*)
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