Macroeconomic Forecasting: Statistically Adequate, Temporal Principal Components

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dc.contributor.authorDorazio, Brian Arthuren
dc.contributor.committeechairSpanos, Arisen
dc.contributor.committeememberBose, Niloyen
dc.contributor.committeememberAshley, Richard A.en
dc.contributor.committeememberHabibnia, Alien
dc.contributor.departmentNot founden
dc.date.accessioned2023-06-06T08:02:04Zen
dc.date.available2023-06-06T08:02:04Zen
dc.date.issued2023-06-05en
dc.description.abstractThe main goal of this dissertation is to expand upon the use of Principal Component Analysis (PCA) in macroeconomic forecasting, particularly in cases where traditional principal components fail to account for all of the systematic information making up common macroeconomic and financial indicators. At the outset, PCA is viewed as a statistical model derived from the reparameterization of the Multivariate Normal model in Spanos (1986). To motivate a PCA forecasting framework prioritizing sound model assumptions, it is demonstrated, through simulation experiments, that model mis-specification erodes reliability of inferences. The Vector Autoregressive (VAR) model at the center of these simulations allows for the Markov (temporal) dependence inherent in macroeconomic data and serves as the basis for extending conventional PCA. Stemming from the relationship between PCA and the VAR model, an operational out-of-sample forecasting methodology is prescribed incorporating statistically adequate, temporal principal components, i.e. principal components which capture not only Markov dependence, but all of the other, relevant information in the original series. The macroeconomic forecasts produced from applying this framework to several, common macroeconomic indicators are shown to outperform standard benchmarks in terms of predictive accuracy over longer forecasting horizons.en
dc.description.abstractgeneralThe landscape of macroeconomic forecasting and nowcasting has shifted drastically in the advent of big data. Armed with significant growth in computational power and data collection resources, economists have augmented their arsenal of statistical tools to include those which can produce reliable results in big data environments. At the forefront of such tools is Principal Component Analysis (PCA), a method which reduces the number of predictors into a few factors containing the majority of the variation making up the original data series. This dissertation expands upon the use of PCA in the forecasting of key, macroeconomic indicators, particularly in instances where traditional principal components fail to account for all of the systematic information comprising the data. Ultimately, a forecasting methodology which incorporates temporal principal components, ones capable of capturing both time dependence as well as the other, relevant information in the original series, is established. In the final analysis, the methodology is applied to several, common macroeconomic and financial indicators. The forecasts produced using this framework are shown to outperform standard benchmarks in terms of predictive accuracy over longer forecasting horizons.en
dc.description.degreeDoctor of Philosophyen
dc.format.mediumETDen
dc.identifier.othervt_gsexam:37157en
dc.identifier.urihttp://hdl.handle.net/10919/115345en
dc.language.isoenen
dc.publisherVirginia Techen
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectPrincipal Component Analysisen
dc.subjectForecastingen
dc.subjectVector Autoregressive Modelsen
dc.subjectStatistical Adequacyen
dc.titleMacroeconomic Forecasting: Statistically Adequate, Temporal Principal Componentsen
dc.typeDissertationen
thesis.degree.grantorVirginia Polytechnic Institute and State Universityen
thesis.degree.leveldoctoralen
thesis.degree.nameDoctor of Philosophyen

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