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...

Nowadays a considerable amount of information on the behavior of the economy is readily available, in the form of large datasets of macroeconomic variables. Central bankers can be expected to base their decisions on this very large information set, so that it can be difficult to track their...