| Abstract: |
This paper models the univariate dynamics of seasonally unadjusted quarterly
macroeconomic time series for the Indian economy including industrial
production, money supply (broad and narrow measures) and consumer price index.
The seasonal integration-cointegration and the periodic models are employed.
The `best' model is selected on the basis of a battery of econometric tests
including comparison of out-of-sample forecast performance. The results
suggest that a periodically integrated process with one unit root best
captures the movements in industrial production. The other variables do not
exhibit periodically varying dynamics, though narrow money and consumer price
index exhibit nonstationary seasonality. For the index of industrial
production, the periodic model yields the best out-of-sample forecasts, while
for broad money, the model in first differences performs best. On the other
hand, for narrow money and the consumer price index, incorporating
nonstationary seasonality does not lead to significant gains in forecast
accuracy. Finally, we find significant conditional heteroskedasticity in
industrial production, with error variance in the first two quarters (highest
and lowest economic activity quarters, respectively) almost three times that
in the other two quarters. |