Publication: Markov-switching dynamic factor models in real time
Authors
Camacho, Maximo ; Perez-Quiros, Gabriel ; Poncela, Pilar
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Publisher
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DOI
https://doi.org/10.1016/j.ijforecast.2018.05.002
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info:eu-repo/semantics/article
Description
© 2018. This document is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
This document is the submitted version of a published work that appeared in final form in
International Journal of Forecasting.
Abstract
We extend the Markov-switching dynamic factor model to account for some of the specificities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as mixed sampling frequencies and ragged-edge data. First, we evaluate the theoretical gains of using data that are available promptly for computing probabilities of recession in real time. Second, we show how to estimate the model that deals with unbalanced panels of data and mixed frequencies, and examine the benefits of this extension through several Monte Carlo simulations. Finally, we assess its empirical reliability for the computation of real-time inferences of the US business cycle, and compare it with the alternative method of forecasting the probabilities of recession from balanced panels.
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Citation
International Journal of Forecasting 34 (4). Pags. 598-611
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