It has been acknowledged that wavelets can constitute a useful tool for forecasting in economics. Through a wavelet multi-resolution analysis, a time series can be decomposed into different timescale components and a model can be fitted to each component to improve the forecast accuracy of the...

The simplicity of the standard diffusion index model of Stock and Watson has certainly contributed to its success among practitioners, resulting in a growing body of literature on factor-augmented forecasts. However, as pointed out by Bai and Ng, the ranked factors considered in the forecasting...