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Factor model forecasts for New Zealand

Troy Matheson

This paper focuses on forecasting four key New Zealand macroeconomic variables using a dynamic factor model and a large number of predictors. We compare the (simulated) real-time forecasting performance of the factor model with a variety of other time series models and gauge the sensitivity of our results to alternative variable selection algorithms. We find that the factor model performs particularly well at longer horizons.
Matheson, Troy (2006). ‘Factor model forecasts for New Zealand’, International Journal of Central Banking, Volume 2(2), Pages 169-237.