Latent factor growth models for forecasting Polish GDP growth, inflation and unemployment using survey data
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Abstract
In this paper a novel application of latent factor growth models is applied to responses to the manufacturing industry tendency survey conducted by the Research Institute for Economic Development, Warsaw School of Economics. An approach based on a common factor was assumed to explain variation in time response to specific questions drawn from the survey questionnaire. It was demonstrated that responses to questions relating to general economic situation in Poland, inflation and employment were explained by a latent growth factor, which was confirmed by RMSEA. Using cross-correlation and an ARIMAX model, it was shown that slopes obtained from latent factor growth models could be applied to forecasting or at least nowcasting of GDP growth and unemployment rate. Survey data of the type described clearly offer potential for refinement of economic projections and it is hoped that this work might stimulate further discussion of the methodology based on latent factor growth modeling for forecasting main macroeconomic time series.(original abstract)
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