A multi-country approach to forecasting output growth using PMIs

This paper derives new theoretical results for forecasting with Global VAR (GVAR) models. It is shown that the presence of a strong unobserved common factor can lead to an undetermined GVAR model. To solve this problem, we propose augmenting the GVAR with additional proxy equations for the strong factors and establish conditions under which forecasts from the augmented GVAR model (AugGVAR) uniformly converge in probability (as the panel dimensions N,T→ ∞ such that N/T→κ for some 0