Factor based forecasting has been at the forefront of developments in the macroeconometric forecasting literature in the recent past. Despite the flurry of activity in the area, a number of specification issues such as the choice of the number of factors in the forecasting regression, the...

In this paper we specify a multi-factor long-memory process that enables us to estimate the fractional differencing parameters at each frequency separately, and adopt this framework to model quarterly prices in three European countries (France, Italy and the UK). The empirical results suggest...

By representing a system of budget shares as an approximate factor model we determine its rank, i.e. the number of common functional forms, or factors, spanning the space of Engel curves. Once the common factors are estimated via approximate principal components, we identify them by imposing...