The empirical analysis of monetary policy requires the construction of instruments for future expected inflation. Dynamic factor models have been applied rather successfully to inflation forecasting. In fact, two competing methods have recently been developed to estimate large-scale dynamic...

Two competing methods have been recently developed to estimate large-scale dynamic factor models based, respectively, on static and dynamic principal components. In this paper we use two large datasets of macroeconomic variables for the US and for the Euro area to evaluate in practice the...