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Improving Short-Term Forecasting of Macedonian GDP: Comparing the Factor Model with the Macroeconomic Structural Equation Model

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  • Dimitar EFTIMOSKI

    (St. Clement of Ohrid University, Bitola, and Faculty of Business Economics, Skopje, Macedonia.)

Abstract

This paper evaluates two different models for short-term forecasting of the Macedonian GDP : (a) the medium-scale static factor model, based on the static principal components analysis, and (b) the small-scale macroeconomic structural equation model. Recursive dynamic pseudo out-of-sample forecasts, based on a panel of quarterly time series, indicate that forecast errors of the factor model are smaller overall in comparison to errors of the structural equation model at all forecast horizons. In line with the existing short-term GDP forecasting practice, our medium-scale factor model (that extracts common factors from a data set of 52 variables) diversifies and strengthens the current macroeconomic forecasting strategy in Macedonia

Suggested Citation

  • Dimitar EFTIMOSKI, 2019. "Improving Short-Term Forecasting of Macedonian GDP: Comparing the Factor Model with the Macroeconomic Structural Equation Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 32-53, June.
    • Handle: RePEc:rjr:romjef:v::y:2019:i:2:p:32-53
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    1. Emilian DOBRESCU, 2020. "Self-fulfillment degree of economic expectations within an integrated space: The European Union case study," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-32, December.

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    More about this item

    Keywords

    factor model; macroeconomic structural equation model; forecasting and forecasting evaluation; GDP;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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