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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

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Volume 19, Issue 3


Can we use seasonally adjusted variables in dynamic factor models?

Maximo Camacho
  • Corresponding author
  • Universidad de Murcia, Facultad de Economia y Empresa, Departamento de Metodos Cuantitativos para la Economia y la Empresa, 30100, Murcia, Spain
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/ Yuliya Lovcha / Gabriel Perez Quiros
Published Online: 2014-09-23 | DOI: https://doi.org/10.1515/snde-2013-0096


We examine the short-term performance of two alternative approaches of forecasting from dynamic factor models. The first approach extracts the seasonal component of the individual variables before estimating the model, while the alternative uses the non seasonally adjusted data in a model that endogenously accounts for seasonal adjustment. Our Monte Carlo analysis reveals that the performance of the former is always comparable to or even better than that of the latter in all the simulated scenarios. Our results have important implications for the factor models literature because they show the that the common practice of using seasonally adjusted data in this type of models is very accurate in terms of forecasting ability. Using five coincident indicators, we illustrate this result for US data.

This article offers supplementary material which is provided at the end of the article.

Keywords: dynamic factor models; seasonal adjustment; short-term forecasting.

JEL Classification: E32; C22; E27


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About the article

Corresponding author: Maximo Camacho, Universidad de Murcia, Facultad de Economia y Empresa, Departamento de Metodos Cuantitativos para la Economia y la Empresa, 30100, Murcia, Spain, e-mail:

Published Online: 2014-09-23

Published in Print: 2015-06-01

Citation Information: Studies in Nonlinear Dynamics & Econometrics, Volume 19, Issue 3, Pages 377–391, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2013-0096.

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