International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

A Dynamic Factor Model for Italian and German Recessions
Giovanni De Luca, Alfonso Carfora

In this paper we analyze a model for the prediction of Italian and German recessions making use of two macro factors that summarize a high number of variables. The two factors consist of a financial factor and real activity factor. Their dynamics is described by random walks. The results are compared with some of the Kauppi and Saikkonen (2008) models. While the in-sample performance of the Dynamic Autoregressive model by Kauppi and Saikkonen is unrivalled, the 6 and 12-months horizons out-of-sample analysis favors the models including some of the factors.

Full Text: PDF