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In fact, two competing methods have recently been developed to estimate large\u2010scale dynamic factor models based, respectively, on static and dynamic principal components. This paper combines the econometric literature on dynamic principal components and the empirical analysis of monetary policy. We assess the two competing methods for extracting factors on the basis of their success in instrumenting future expected inflation in the empirical analysis of monetary policy. We use two large data sets of macroeconomic variables for the USA and for the Euro area. Our results show that estimated factors do provide a useful parsimonious summary of the information used in designing monetary policy. Copyright \u00a9 2005 John Wiley &amp; Sons, Ltd.<\/jats:p>","DOI":"10.1002\/jae.815","type":"journal-article","created":{"date-parts":[[2005,7,27]],"date-time":"2005-07-27T16:10:08Z","timestamp":1122480608000},"page":"603-620","source":"Crossref","is-referenced-by-count":101,"title":["Principal components at work: the empirical analysis of monetary policy with large data sets"],"prefix":"10.1002","volume":"20","author":[{"given":"Carlo A.","family":"Favero","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Massimiliano","family":"Marcellino","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Francesca","family":"Neglia","sequence":"additional","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"311","published-online":{"date-parts":[[2005,7,27]]},"reference":[{"key":"e_1_2_8_2_1","unstructured":"AltissimoF BassanettiA CristadoroR ForniM HallinM LippiM ReichlinL VeroneseG.2001.EuroCOIN: a real time coincident indicator of the Euro area business cycle. 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