We analyze the dynamic interactions between commodity prices and output growth of the seven biggest Latin American exporters: Argentina, Brazil, Colombia, Chile, Mexico, Peru and Venezuela. Using a novel defi nition of Markovswitching impulse response functions, we fi nd that the response of...

We extend the Markov-switching dynamic factor model to account for some of the specificities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as ragged edges and mixed frequencies. We examine the theoretical benefits of this extension and corroborate the...

We examine the short-term performance of two alternative approaches to forecasting using dynamic factor models. The first approach extracts the seasonal component of the individual indicators before estimating the dynamic factor model, while the alternative uses the nonseasonally adjusted data...

During the last crisis, developed economies’ sovereign Credit Default Swap (hereafter CDS) premia have gained in importance as a tool for approximating credit risk. In this paper, we fit a dynamic factor model to decompose the sovereign CDS spreads of ten OECD economies into three components:...

We examine the finite-sample performance of small versus large scale dynamic factor models. Our Monte Carlo analysis reveals that small scale factor models out-perform large scale models in factor estimation and forecasting for high levels of cross-correlation across the idiosyncratic errors of...

Much has been written about why economists failed to predict the latest financial and real crisis. Reading the recent literature, it seems that the crisis was so obvious that economists must have been blind when looking at data not to see it coming. In this paper, we analyze whether such claims...

Practitioners do not always use research findings, as the research is not always conducted in a manner relevant to real-world practice. This survey seeks to close the gap between research and practice in respect of short-term forecasting in real time. To this end, we review the most relevant...

We develop a twofold analysis of how the information provided by several economic indicators can be used in Markov-switching dynamic factor models to identify the business cycle turning points. First, we compare the performance of a fully non-linear multivariate specification (one-step approach)...

We propose a fundamentals-based econometric model for the weekly changes in the euro-dollar rate with the distinctive feature of mixing economic variables quoted at different frequencies. The model obtains good in-sample fit and, more importantly, encouraging outof-sample forecasting results at...

We develop a dynamic factor model to compute short term forecasts of the Spanish GDP growth in real time. With this model, we compute a business cycle index which works well as an indicator of the business cycle conditions in Spain. To examine its real time forecasting accuracy, we use real-time...