We develop a small-scale dynamic factor model for the Swiss economy based on an appropriately selected set of indicators. The resulting business cycle factor is in striking accordance with historical Swiss business cycle fluctuations. Our proposed model demonstrates a remarkable performance in...

This paper presents a novel dynamic factor model for non-stationary data. We begin by constructing a simple dynamic stochastic general equilibrium growth model and show that we can represent and estimate the model using a simple linear-Gaussian (Kalman) filter. Crucially, consistent estimation...