June 2006 issue contents
Factor Model Forecasts for New Zealand - IJCB - June 2006

by Troy D. Matheson
Reserve Bank of New Zealand


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 (including the Reserve Bank of New Zealand's published forecasts), and we gauge the sensitivity of our results to alternative variable-selection algorithms. We find that the factor model performs particularly well at longer horizons.

JEL Codes: C32, E47.

Full article (PDF, 69 pages 418 kb)