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A Dynamic Factor Model For The Colombian Inflation

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Abstract
ABSTRACT. We use a dynamic factor model proposed by Stock and Watson [1998, 1999,2002a,b] to forecast Colombian inflation. The model includes 92 monthly series observedover the period 1999:01-2008:06. The results show that for short-run horizons, factor modelforecasts significantly outperformed the auto-regressive benchmark model in terms of theroot mean squared forecast error statistic.

Suggested Citation

  • Eliana González & Luis F. Melo & Viviana Monroy & Brayan Rojas, 2009. "A Dynamic Factor Model For The Colombian Inflation," Borradores de Economia 5273, Banco de la Republica.
    • Handle: RePEc:col:000094:005273
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    References listed on IDEAS

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    1. Luis Fernando Melo & Héctor Núñez, 2004. "Combinación de Pronósticos de la Inflación en Presencia de cambios Estructurales," Borradores de Economia 286, Banco de la Republica de Colombia.
    2. Jörg Breitung & Sandra Eickmeier, 2006. "Dynamic Factor Models," Springer Books, in: Olaf Hübler & Jachim Frohn (ed.), Modern Econometric Analysis, chapter 3, pages 25-40, Springer.
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    16. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
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    18. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    19. Ziegler, Christina & Eickmeier, Sandra, 2006. "How good are dynamic factor models at forecasting output and inflation? A meta-analytic approach," Discussion Paper Series 1: Economic Studies 2006,42, Deutsche Bundesbank.
    20. Mario Forni & Lucrezia Reichlin, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(3), pages 453-473.
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    Cited by:

    1. Gibson, Heather D. & Hall, Stephen G. & Tavlas, George S., 2022. "A Suggestion For A Dynamic Multifactor Model (Dmfm)," Macroeconomic Dynamics, Cambridge University Press, vol. 26(6), pages 1423-1443, September.
    2. Eliana González, 2010. "Bayesian Model Averaging. An Application to Forecast Inflation in Colombia," Borradores de Economia 7013, Banco de la Republica.
    3. Andrés Felipe Londoño & Jorge Andrés Tamayo & Carlos Alberto Velásquez, 2012. "Dinámica de la política monetaria e inflación objetivo en Colombia: una aproximación FAVAR," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 30(68), pages 14-71, June.
    4. Eliana González, 2011. "Forecasting With Many Predictors. An Empirical Comparison," Borradores de Economia 643, Banco de la Republica de Colombia.
    5. Sergio Iván Prada & Julio C. Alonso & Julián Fernández, 2019. "Exchange rate pass-through into consumer healthcare prices in Colombia," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 38(77), pages 523-550, July.

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    More about this item

    Keywords

    Dynamic factor models; static factor models; forecast accuracy.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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