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on Forecasting |
| By: | Matheson, Troy D |
| Abstract: | This paper focuses on forecasting four key New Zealand macroeconomic variables using a dynamic factor model and a large number of predictors. We compare the (simulated) real-time forecasting performance of the factor model with a variety of other time-series models (including the Reserve Bank of New Zealand’s published forecasts), and we gauge the sensitivity of our results to alternative variable-selection algorithms. We find that the factor model performs particularly well at longer horizons. |
| JEL: | G00 G0 |
| Date: | 2006–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:807&r=for |
| By: | DION, David Pascal |
| Abstract: | The traditional consumption function based on the life cycle permanent income hypothesis (LC-PIH) considers that consumer spending is based on households’ expectations of their future income. However, in short-term forecasting, the traditional economic determinants of consumption do not perform accurately. In addition to these macroeconomic variables, a measure of uncertainty is needed to better assess the short-term dynamics of the consumption function. Such a measure of uncertainty may be given by households’ expectations about their personal financial situation and general economic situation. A measure of these expectations is provided by consumer confidence (measured by the Consumer Confidence Index - CCI). In addition, consumer confidence seems to contain both a forecasting and independent explicative ability to predict consumption. Economic variables do not fully explain confidence, suggesting that its independent explicative power stems from its idiosyncratic features. We discuss in detail these features thanks to a review of the theoretical and empirical literature by discussing the consistency of consumer confidence with the standard consumption theory, analysing the determinants of the CCI and studying the predictive and causal power of the CCI. |
| Keywords: | Consumer confidence; consumption function; forecasting |
| JEL: | D12 C52 D11 E27 E21 C53 |
| Date: | 2006–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:902&r=for |
| By: | Svensson, Lars O; Tetlow, Robert J |
| Abstract: | We outline a method to provide advice on optimal monetary policy while taking policymakers’ judgment into account. The method constructs optimal policy projections (OPPs) by extracting the judgment terms that allow a model, such as the Federal Reserve Board staff economic model, FRB/US, to reproduce a forecast, such as the Greenbook forecast. Given an intertemporal loss function that represents monetary policy objectives, OPPs are the projections — of target variables, instruments, and other variables of interest — that minimize that loss function for given judgment terms. The method is illustrated by revisiting the economy of early 1997 as seen in the Greenbook forecasts of February 1997 and November 1999. In both cases, we use the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world in 1997 and our OPPs illustrate this difference. For a conventional loss function, our OPPs provide significantly better performance than Taylor-rule simulations. |
| JEL: | G00 G0 |
| Date: | 2005–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:839&r=for |
| By: | Svensson, Lars O |
| Abstract: | Monetary Policy with Judgment: Forecast Targeting by Lars E O Svensson Princeton University Abstract "Forecast targeting", forward-looking monetary policy that uses central-bank judgment to construct optimal policy projections of the target variables and the instrument rate, may perform substantially better than monetary policy that disregards judgment and follows a given instrument rule. This is demonstrated in a few examples for two empirical models of the U.S. economy, one forward looking and one backward looking. A complicated infinite-horizon central-bank projection model of the economy can be closely approximated by a simple finite system of linear equations, which is easily solved for the optimal policy projections. Optimal policy projections corresponding to the optimal policy under commitment in a timeless perspective can easily be constructed. The whole projection path of the instrument rate is more important than the current instrument setting. The resulting reduced-form reaction function for the current instrument rate is a very complex function of all inputs in the monetary-policy decision process, including the central bank’s judgment. It cannot be summarized as a simple reaction function such as a Taylor rule. Fortunately, it need not be made explicit. |
| Keywords: | Inflation targeting; optimal monetary policy; forecasts |
| JEL: | G00 G0 |
| Date: | 2005–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:819&r=for |
| By: | Ghent, Andra |
| Abstract: | I generate priors for a VAR from four competing models of economic fluctuations: a standard RBC model, Fisher’s (2006) investment-specific technology shocks model, an RBC model with capital adjustment costs and habit formation, and a sticky price model with an unaccommodating monetary authority. I compare the accuracy of the forecasts made with each of the resulting VARs. The economic models generate similar forecast errors to one another. However, at horizons of one to two years and greater, the models generally yield superior forecasts to those made using both an unrestricted VAR and a VAR that uses shrinkage from a Minnesota prior. |
| Keywords: | Model Evaluation; Priors from DSGE models; Economic Fluctuations; Hours Debate; Business Cycles; |
| JEL: | C52 E37 E32 C53 E3 C11 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:180&r=for |
| By: | Frimpong, Joseph Magnus; Oteng-Abayie, Eric Fosu |
| Abstract: | This paper models and forecasts volatility (conditional variance) on the Ghana Stock Exchange using a random walk (RW), GARCH(1,1), EGARCH(1,1), and TGARCH(1,1) models. The unique ‘three days a week’ Databank Stock Index (DSI) is used to study the dynamics of the Ghana stock market volatility over a 10-year period. The competing volatility models were estimated and their specification and forecast performance compared with each other, using AIC and LL information criteria and BDS nonlinearity diagnostic checks. The DSI exhibits the stylized characteristics such as volatility clustering, leptokurtosis and asymmetry effects associated with stock market returns on more advanced stock markets. The random walk hypothesis is rejected for the DSI. Overall, the GARCH (1,1) model outperformed the other models under the assumption that the innovations follow a normal distribution. |
| Keywords: | Ghana Stock Exchange; developing financial markets; volatility; GARCH model |
| JEL: | C52 G15 G10 C22 |
| Date: | 2006–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:593&r=for |
| By: | Gomez-Sorzano, Gustavo |
| Abstract: | Abstract: This paper continues a research born in 1993 as a consequence of the growing concern regarding the escalation of violence in Colombia; its objective is to create an econometric model capable of forecasting the path of terrorist murder under different policy options and helping the country in the design of state policy drawing the lineaments for reaching the pacification of the country. I claim that the approach presented here is the only way of creating an econometric model for terrorist murder in Colombia. In the first part I use The Beveridge and Nelson decomposition of economic time series to estimate the cyclical component of murder, which is used later to construct a theoretically and statistically satisfying model to account for cyclically motivated terrorist murder in Colombia, 1950-2004. The variables that together account for eighty three percent of the variation in cyclical terrorist murder are the years of Colombia’s La Violencia period when the peasant self-defense movements appeared, the years of the so-called National Front political collusion between the two main establishment parties, the real trade balance, the size of Colombia’s military forces as a proxy for all armed forces (military, para-military, guerrilla, and drug-related) in the country, the unemployment rate, the number of students matriculated in all modalities and people displaced in the country. The forecasts for cyclical terrorist murder for 2003-2004 show the big dilemma facing the Colombian authorities: the strong reduction of displaced people from 212,000 in 2003 to 117,000 in 2004 boosted the cyclical terrorist murder in the countryside, erasing the initial results by president Uribe’s administration at controlling the intensity of the conflict and implying that any future policy at diminishing it should control the number of displaced people, one of the biggest problems facing Colombia today. The final section presents forecasts for 2005-2019 suggesting, that peace will be attained around year 2008 and, that the way, at this point to reach sustainable peace is through the continuation of the Democratic Security Policy and strong presidential leadership headed towards disarmament of all armed actors in the country combined with the implementing of political and social changes that will secure lasting peace before year 2019. |
| Keywords: | Colombia; Beveridge and Nelson; cyclical terrorist murder; democratic security policy; sustainable peace; permanent peace; lasting peace. |
| JEL: | C53 C22 |
| Date: | 2006–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:134&r=for |
| By: | Gomez-Sorzano, Gustavo |
| Abstract: | Abstract: This paper continues a research born in 1993 as a consequence of the concern regarding the increase in Colombian violence, and especially for its escalation during the 1990’s, its objective is to create an econometric model capable of forecasting the path of terrorist murder under different policy options and helping the country in the design of a state policy drawing the lineaments for reaching the pacification of the country. In the first part I use The Beveridge and Nelson decomposition of economic time series to estimate the cyclical component of murder which is used to construct a theoretically and statistically satisfying model to account for it from 1950 to 2004. The variables that together account for eighty three percent of the variation in cyclical terrorist murder are the years of Colombia’s La Violencia period when the peasant self-defense movements appeared, the years of the so-called National Front political collusion between the two main establishment parties, the real trade balance, the size of Colombia’s military forces as a proxy for all armed forces (military, para-military, guerrilla, and drug-related) in the country, the unemployment rate, the number of students matriculated in all modalities and people displaced in the country. The forecasts for cyclical terrorist murder for 2005-2007 show the big dilemma facing the Colombian authorities: the strong reduction of displaced people from 2003 to 2004 boost the cyclical terrorist murder in the countryside, erasing the initial results by president Uribe’s administration at controlling the intensity of the Colombian civil conflict. The second part presents a first approach at constructing a theoretical near-VAR system for cyclical terrorist murder and social and economic variables in Colombia. The third section presents forecasts 2004-2007 estimated by the single equation model and the near VAR-system. Both models show a jump in terrorist murder by 2004 and 2005 implying that any future policy at diminishing the conflict should control the number of displaced people, one of the biggest problems facing Colombia today. Terrorist murder is expected to decrease again by 2006 and 2007 suggesting that the continuation of The Democratic Security Policy will be destroying the roots of the Colombian civil conflict. The final section presents 11 scenarios 2005-2010 and 18 scenarios 2006-2019. According to them peace will be attained around year 2008 and sustainable peace will be granted before year 2019. |
| Keywords: | Colombia; cyclical terrorist murder; democratic security policy; sustainable peace. |
| JEL: | C53 C51 C32 C30 |
| Date: | 2006–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:539&r=for |
| By: | Bazhanov, Andrei; Vyscrebentsev, Alexei |
| Abstract: | Our approach is based on the use of the Durbin-Watson statistic and other statistical criteria for the specification of the number of the nonlinear summands in the empirical model of M.K. Hubbert. Given alternate criteria we compare the dynamics of extraction over recent years for the USA and Russia. We compare simulated dynamics to data on recoverable oil reserves for recent years. |
| Keywords: | Hubbert’s curve; Durbin-Watson statistic |
| JEL: | Q31 |
| Date: | 2005–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:479&r=for |
| By: | Carone, Giuseppe; Denis, Cécile; Mc Morrow, Kieran; Mourre, Gilles; Röger, Werner |
| Abstract: | This paper presents the results of long run labour productivity and GDP growth rate projections (until 2050) for each of the 25 EU Member States and provides a detailed overview of the forecast methodology used. These projections were undertaken in order to provide an internationally comparable macroeconomic framework against which to assess the potential economic and fiscal effects of ageing populations. The projections presented in this paper, using a common production function methodology for all 25 countries, show the GDP growth rate effects of an assumptions-driven extrapolation of recent trends in employment and labour productivity. These base case projections reflect the working assumption of “no policy change”.Various sensitivity tests are carried out to check the GDP per capita impact of some factors which have been excluded from the baseline scenario for reasons of simplicity or because of a lack of consensus in the academic literature. Some of the interesting conclusions that emerge from these sensitivity tests include : • Firstly, the GDP per capita impact of changes in the participation rate assumption used in the projections is much greater than for assumed changes in the share of part-time employment (i.e. in average hours worked per worker). • Secondly, the negative effect of a change in the age-structure of the population is fairly limited, although it is accepted that the labour productivity of an individual is likely to decline after the age of 55. A very strong fall in the productivity of older workers compared with that of prime-age workers would be required to significantly depress total labour productivity. Such an outcome, on the basis of current evidence, appears rather unlikely. • Thirdly, changing the TFP growth rate targets (e.g. use of the 1990’s average instead of the long-term 1970-2004 average) could strongly affect the projections. • Finally, an assumption of productivity convergence in levels substantially alters the projections for most EU10 countries but leaves the EU15 almost unchanged. JEL classific |
| Keywords: | Productivity; ageing; long-term projections; production function; labour productivity; older workers |
| JEL: | J1 O47 J21 H55 J26 D24 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:744&r=for |
| By: | YU, Ge |
| Abstract: | The validity of the rational expectations hypothesis is explored using 12 years direct individual expectations data derived from the BHPS. The usage of micro data drives off the possibility of spurious rejections caused by the existence of micro-heterogeneity. And the 12 years BHPS micro panel data can release the average-out problem in a comparatively short term micro panel data. In short, I test if the individual expectations are unbiased and efficient in a comparatively long term in this paper. As a result, expectations errors are found to be biased and inefficient. Furthermore, the hypothesis that expectations errors are random is investigated by exploring the existence of systematic components in expectations errors. There exists the micro-heterogeneity among different types of respondents. Also, the factors that significantly affect individual’s expectations are identified. |
| Keywords: | rational expectations; systematic heterogeneity; forecast errors; rational expectations hypothesis; subjective |
| JEL: | E13 E2 E17 |
| Date: | 2003 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:502&r=for |