Factor model forecasts for New Zealand

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Troy Matheson
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Published as
Matheson, Troy (2006). ‘Factor model forecasts for New Zealand’, International Journal of Central Banking, Volume 2(2), Pages 169-237.
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.