We address the problem of selecting the common factors that are relevant for forecasting macroeconomic variables. In economic forecasting using diffusion indexes the factors are ordered, according to their importance, in terms of relative variability, and are the same for each variable to...

This article presents a robust augmented Kalman filter that extends the data-cleaning filter (Masreliez and Martin, 1977) to the general state space model featuring nonstationary and regression effects. The robust filter shrinks the observations towards their one-step-ahead prediction based on...