Diffusion Index Models and Index Proxies: Recent Results and New Directions

Authors

  • Nii Ayi Armah The Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada
  • Norman R. Swanson Professor, Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, NJ 08901, USA

Keywords:

Diffusion index, Factor, Forecast, Macroeconometrics, Parameter estimation error, Proxy

Abstract

Diffusion index models have received considerable attention from both theoreticians and empirical econometricians in recent years. One reason for this is that datasets with many variables are increasingly becoming available and being utilized for economic modelling, and another is that common factors are often assumed to underlie the co-movements of a set of macroeconomic variables. In this paper we review some recent results in the study of diffusion index models, focusing primarily on advances due to [4, 5] and [1]. We discuss, for example, the construction of factors used in prediction models implemented using diffusion index methodology and approaches that are useful for assessing whether there are observable variables that adequately "proxy" for estimated factors.

Author Biographies

  • Nii Ayi Armah, The Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada
    The Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada
  • Norman R. Swanson, Professor, Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, NJ 08901, USA
    Professor

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Published

2010-05-22

Issue

Vol. 3 No. 3 (2010): Special Issue on Granger Econometrics and Statistical Modeling

Section

Special Issue on Granger Econometrics and Statistical Modeling

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How to Cite

Diffusion Index Models and Index Proxies: Recent Results and New Directions. (2010). European Journal of Pure and Applied Mathematics, 3(3), 478-501. https://www.ejpam.com/index.php/ejpam/article/view/803