OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
A Dynamic Factor Model for World Trade Growth
This paper reviews the main monthly indicators that could help forecasting world trade and compares
different type of forecasting models using these indicators. In particular it develops dynamic factor models
(DFM) which have the advantage of handling larger datasets of information than bridge models and
allowing for the inclusion of numerous monthly indicators on a national and world-wide level such as
financial indicators, transportation and shipping indices, supply and orders variables and information
technology indices. The comparison of the forecasting performance of the DFMs with more traditional
bridge equation models as well as autoregressive benchmarking models shows that, the dynamic factor
approach seems to perform better, especially when a large set of indicators is used, but also that the
marginal gains in adding indicators seems to diminish after a certain stage.
Keywords: forecasting, world trade, dynamic factor models, bridge models
JEL:
F17: International Economics / Trade / Trade: Forecasting and Simulation;
F47: International Economics / Macroeconomic Aspects of International Trade and Finance / Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications;
E37: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications;
C53: Mathematical and Quantitative Methods / Econometric Modeling / Forecasting and Prediction Methods; Simulation Methods
- Click to access:
-
Click to download PDF - 1.07MBPDF