Publication Type
Working Paper
Version
publishedVersion
Publication Date
2-2009
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 analyzing business cycles in a small open economy. The empirical results suggest that four common factors are present in the quarterly time series, which can broadly be interpreted as world, regional, electronics and domestic economic cycles. The estimated factor model 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 | Finance | Growth and Development | Macroeconomics
Research Areas
Macroeconomics
First Page
1
Last Page
30
Publisher
SMU Economics and Statistics Working Paper Series, No. 05-2009
City or Country
Singapore
Citation
CHOW, Hwee Kwan and CHOY, Keen Meng.
Analyzing and Forecasting Business Cycles in a Small Open Economy: A Dynamic Factor Model for Singapore. (2009). 1-30.
Available at: https://ink.library.smu.edu.sg/soe_research/1222
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Included in
Asian Studies Commons, Finance Commons, Growth and Development Commons, Macroeconomics Commons
Comments
Published in OECD Journal: Journal of Business Cycle Measurement and Analysis, 2009, https://doi.org/10.1787/jbcma-v2009-art3-en