Markov-switching dynamic factor models in real time |
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Authors: | Maximo Camacho Gabriel Perez-Quiros Pilar Poncela |
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Institution: | 1. Universidad de Murcia, Spain;2. Banco de España, Spain;3. CEPR, United Kingdom;4. European Commission, Joint Research Centre, Italy |
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Abstract: | We extend the Markov-switching dynamic factor model to account for some of the specificities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as mixed sampling frequencies and ragged-edge data. First, we evaluate the theoretical gains of using data that are available promptly for computing probabilities of recession in real time. Second, we show how to estimate the model that deals with unbalanced panels of data and mixed frequencies, and examine the benefits of this extension through several Monte Carlo simulations. Finally, we assess its empirical reliability for the computation of real-time inferences of the US business cycle, and compare it with the alternative method of forecasting the probabilities of recession from balanced panels. |
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Keywords: | Business cycles Output growth Time series |
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