Publication Type
Journal Article
Version
acceptedVersion
Publication Date
10-2009
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
Publisher
OECD
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). Journal of Business Cycle Measurement and Analysis,. 3, (1), 19-41.
Available at: https://ink.library.smu.edu.sg/soe_research/1230
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.
Additional URL
https://doi.org/10.1787/jbcma-v2009-art3-en