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A Dynamic Factor Model for Current-Quarter Estimates of Economic Activity in Hong Kong

Author

Listed:
  • Stefan Gerlach

    (University of Basel and CEPR)

  • Matthew S. Yiu

    (Hong Kong Institute for Monetary Research)

Abstract

This paper applies the single-index dynamic factor model developed by Stock and Watson (1991) to construct current-quarter estimates of economic activity in Hong Kong. The Hang Seng index, a residential property price index, retail sales and total exports are used as coincident indicators. Principal Component Analysis is first used to obtain an impression of the common component of the indicator series. This component and the dynamic factor identified by the Stock-Watson methodology are strongly correlated and seem to account for economic fluctuations in Hong Kong reasonably well.

Suggested Citation

  • Stefan Gerlach & Matthew S. Yiu, 2004. "A Dynamic Factor Model for Current-Quarter Estimates of Economic Activity in Hong Kong," Working Papers 162004, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:162004
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    References listed on IDEAS

    as
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    3. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
    4. Gerlach, Stefan & Yiu, Matthew S., 2004. "Estimating output gaps in Asia: A cross-country study," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 115-136, March.
    5. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, April.
    6. James H. Stock & Mark W. Watson, 1993. "Business Cycles, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number stoc93-1.
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    Cited by:

    1. Ashwin Madhou, 2015. "Demystifying output gap pressure through surveys in a monetary analysis setting: an experimental perspective," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Indicators to support monetary and financial stability analysis: data sources and statistical methodologies, volume 39, Bank for International Settlements.
    2. Tak-Kuen Siu & Wai-Ki Ching & Eric Fung & Michael Ng, 2007. "Extracting Information from Spot Interest Rates and Credit Ratings using Double Higher-Order Hidden Markov Models," Computational Economics, Springer;Society for Computational Economics, vol. 29(3), pages 425-425, May.

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    More about this item

    Keywords

    Business cycles; dynamic factor model; Kalman filtering;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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