In this paper we analyze a model for the prediction of Italian and German recessions making use of two macro factors that summarize a high number of variables. The two factors consist of a financial factor and real activity factor. Their dynamics is described by random walks. The results are compared with some of the Kauppi and Saikkonen (2008) models. While the in-sample performance of the Dynamic Autoregressive model by Kauppi and Saikkonen is unrivalled, the 6 and 12-months horizons out-of-sample analysis favors the models including some of the factors.
A dynamic factor model for Italian and German recessions
giovanni de luca
;alfonso carfora
2018-01-01
Abstract
In this paper we analyze a model for the prediction of Italian and German recessions making use of two macro factors that summarize a high number of variables. The two factors consist of a financial factor and real activity factor. Their dynamics is described by random walks. The results are compared with some of the Kauppi and Saikkonen (2008) models. While the in-sample performance of the Dynamic Autoregressive model by Kauppi and Saikkonen is unrivalled, the 6 and 12-months horizons out-of-sample analysis favors the models including some of the factors.File in questo prodotto:
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