Factor‐Augmented Bridge Models (FABM) and Soft Indicators to Forecast Italian Industrial Production |
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Authors: | Alessandro Girardi Barbara Guardabascio Marco Ventura |
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Institution: | ISTAT, Italian National Institute of Statistics, Rome, Italy |
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Abstract: | This paper presents a new forecasting approach straddling the conventional methods applied to the Italian industrial production index. Specifically, the proposed method treats factor models and bridge models as complementary ingredients feeding a unique model specification. We document that the proposed approach improves upon traditional bridge models by making efficient use of the information conveyed by a large amount of survey data on manufacturing activity. Different factor algorithms are compared and, under the provision that a large estimation window is used, partial least squares outperform principal component‐based alternatives. Copyright © 2016 John Wiley & Sons, Ltd. |
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Keywords: | IPI forecasting hard data soft data bridge models factor models |
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