This article proposes a modified method for the construction of diffusion indexes in macroeconomic forecasting using principal component regres- sion. The method aims to maximize the amount of variance of the origi- nal predictor variables retained by the diffusion indexes, by matching the data...

This chapter reviews methods for selecting empirically relevant predictors from a set of N potentially relevant ones for the purpose of forecasting a scalar time series. First, criterion-based procedures in the conventional case when N is small relative to the sample size, T , are reviewed. Then...