Diffusion Index-Based Inflation Forecasts for the Euro Area

By E. Angelini, J. Henry, R. Mestre. Social Science Research Network, 2002

116 citations recorded by the source corpus.

Diffusion indexes based on dynamic factors have recently been advocated by Stock and Watson (1998), and further used to perform forecasting tests by the same authors on US data. This technique is explored for the euro area using a multi-country data set and a broad array of variables, in order to test the inflation forecasting performance of extracted factors at the aggregate euro area level. First, a description of factors extracted from different data sets is performed using a number of different approaches. Conclusions reached are that nominal phenomena in the original variables might be well captured in-sample using the factor approach. Out-of-sample tests have more ambiguous interpretation, as factors seem to be good leading indicators of inflation, but the comparative advantage of the factors is less clear. Nevertheless, alternative indicators such as unemployment or money growth do not outperform them JEL Classification: C53, E31, E37

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/6ff9f84b3db7d76351a58d10561d75ceb5fc0549

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Confidence Intervals for Diffusion Index Forecasts and Inference for Factor-Augmented Regressions (2006, background): “(2001b), Artis et al. (2001), Banerjee et al. (2004), and Shintani (2002). (2)See, for example, Angelini et al.”
Determining the Number of Factors in the General Dynamic Factor Model (2007, methodology): “…(2002b) for applications to data from United Kingdom, France, the Netherlands, Germany, Belgium, and the United States; Altissimo et al. (2001), Angelini, Henry, and Mestre (2001), Forni et al. (2003), and Marcellino, Stock, and Watson (2003) for the Euro area; and Aiolfi, Catão, and Timmerman…”