Abstract.
We use the Stock-Watson diffusion index methodology to summarize the information contained in a wide set of monthly series (published in the Statistical Bulletin of the Bank of Spain) by means of a reduced number of factors. We find that the first two factors may be used as indicators of the core inflation and the business cycle dynamics of the Spanish economy, respectively. In addition, we study the effects of incorporating large information sets for the analysis of monetary policy. Finally, we show that forecasting prices and output with our factors outperforms other standard alternative forecasting procedures.
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JEL Classification:
E31, E32, E37
We are most grateful to Pilar Bengoechea, Ramón María-Dolores, and Javier Vallés for valuable comments. We would like to thank Gabriel Pérez-Quirós and two anonymous referees for constructive suggestions leading to improvements in the content and presentation of the paper. We however stand responsible for any remaining errors and omissions.
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Camacho, M., Sancho, I. Spanish diffusion indexes. Spanish Economic Review 5, 173–203 (2003) (2003). https://doi.org/10.1007/s10108-003-0062-2
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DOI: https://doi.org/10.1007/s10108-003-0062-2