Bond Risk Premia Forecasting: A Simple Approach forExtracting Macroeconomic Information from a Panelof Indicators

We propose a simple but effective estimation procedure to extract the level and the volatilitydynamics of a latent macroeconomic factor from a panel of observable indicators. Our approachis based on a multivariate conditionally heteroskedastic exact factor model that cantake into account the heteroskedasticity feature shown by most macroeconomic variables andrelies on an iterated Kalman filter procedure. In simulations we show the unbiasedness of theproposed estimator and its superiority to different approaches introduced in the literature.[...]