Interpolation and Backdating with a Large Information Set

36 Pages Posted: 30 Sep 2004

See all articles by Elena Angelini

Elena Angelini

European Central Bank (ECB)

Jerome Henry

European Central Bank (ECB)

Massimiliano Giuseppe Marcellino

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: October 2004

Abstract

Existing methods for data interpolation or backdating are either univariate or based on a very limited number of series, due to data and computing constraints that were binding until the recent past. Nowadays large datasets are readily available, and models with hundreds of parameters are fastly estimated. We model these large datasets with a factor model, and develop an interpolation method that exploits the estimated factors as an efficient summary of all the available information. The method is compared with existing standard approaches from a theoretical point of view, by means of Monte Carlo simulations, and also when applied to actual macroeconomic series. The results indicate that our method is more robust to model misspecification, although traditional multivariate methods also work well while univariate approaches are systematically outperformed. When interpolated series are subsequently used in econometric analyses, biases can emerge, depending on the type of interpolation but again be reduced with multivariate approaches, including factor-based ones.

Keywords: Interpolation, factor model, Kalman filter, spline

JEL Classification: C32, C43, C82

Suggested Citation

Angelini, Elena and Henry, Jerome and Marcellino, Massimiliano, Interpolation and Backdating with a Large Information Set (October 2004). Available at SSRN: https://ssrn.com/abstract=598141

Elena Angelini

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 69 1344 7912 (Phone)
44 69 1344 6575 (Fax)

Jerome Henry

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7614 (Phone)
+49 69 1344 6575 (Fax)

Massimiliano Marcellino (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom