Title

Analyzing and Forecasting Business Cycle in a Small Open Economy: A Dynamic Factor Model for Singapore

Publication Type

Journal Article

Publication Date

1-2009

Abstract

A dynamic factor model is applied to a large panel dataset of Singapore’s macroeconomic variables and global economic indicators with the initial objective of analysing business cycles in a small open economy. The empirical results suggest that four common factors – which can broadly be interpreted as world, regional, electronics and domestic economic cycles – capture a large proportion of the co-variation in the quarterly time series. The estimated factor model also explains well the observed fluctuations in real economic activity and price inflation, leading us to use it in forecasting Singapore’s business cycles. We find that the forecasts generated by the factors are generally more accurate than the predictions of univariate models and vector autoregressions that employ leading indicators.

Keywords

business cycle, dynamic factor model, forecasting, Singapore

Discipline

Asian Studies | Growth and Development | Macroeconomics

Research Areas

Macroeconomics

Publication

Journal of Business Cycle Measurement and Analysis,

Volume

3

Issue

1

First Page

19

Last Page

41

ISSN

1995-2880

Identifier

10.1787/jbcma-v2009-art3-en

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1787/jbcma-v2009-art3-en

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