School of Economics

 Invites you to a

School seminar presented by

Dacheng Xiu
(Chicago Booth University)

Prediction When Factors are Weak

 Thursday 12 October 2023

11.00am – 12.30pm

Level 6 Seminar Room (650)

A02 Social Sciences Building

Camperdown Campus
The University of Sydney NSW 2006

Zoom: 84157692463

 In macroeconomic forecasting, principal component analysis (PCA) has been the most prevalent approach to the recovery of factors, which summarize information in a large set of macro predictors. Nevertheless, the theoretical justification of this approach often relies on a convenient and critical assumption that factors are pervasive. To incorporate information from weaker factors, we propose a new prediction procedure based on supervised PCA, which iterates over selection, PCA, and projection. The selection step finds a subset of predictors most correlated with the prediction target, whereas the projection step permits multiple weak factors of distinct strength. We justify our procedure in an asymptotic scheme where both the sample size and the cross-sectional dimension increase at potentially different rates. Our empirical analysis highlights the role of weak factors in predicting inflation, industrial production growth, and changes in unemployment.

For further information contact: School seminar series coordinators
Alastair Fraser (alastair.fraser@sydney.edu.au) & Brendan Beare (brendan.beare@sydney.edu.au)

For all upcoming seminars in School of Economics see Our events and Calendar