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on Forecasting |
| By: | Costas Milas (Keele University, UK and The Rimini Centre for Economics Analysis, Italy.); Philip Rothman (East Carolina University, USA) |
| Abstract: | In this paper we use smooth transition vector error-correction models (STVECMs) in a simulated out-of-sample forecasting experiment for the unemployment rates of the four non-Euro G-7 countries, the U.S., U.K., Canada, and Japan. For the U.S., pooled forecasts constructed by taking the median value across the point forecasts generated by the linear and STVECM forecasts appear to perform better than the linear AR(p) benchmark more so during business cycle expansions. Such pooling also tends to lead to statistically significant forecast improvement for the U.K. ÒReality checksÓ of these results suggest that they do not stem from data snooping. |
| Keywords: | nonlinear, asymmetric, STVECM, pooled forecasts, Diebold-Mariano |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:49-07&r=for |
| By: | Ivana Komunjer; Michael T. Owyang |
| Abstract: | In this paper, we propose a new family of multivariate loss functions that can be used to test the rationality of vector forecasts without assuming independence across individual variables. When only one variable is of interest, the loss function reduces to the flexible asymmetric family recently proposed by Elliott, Komunjer, and Timmermann (2005). Following their methodology, we derive a GMM test for multivariate forecast rationality that allows the forecast errors to be dependent, and takes into account forecast estimation uncertainty. We use our test to study the rationality of macroeconomic vector forecasts in the growth rate in nominal output, the CPI inflation rate, and a short-term interest rate. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-047&r=for |
| By: | Dimitrios D. Thomakos (University of Peloponnese, Greece and The Rimini Centre for Economics Analysis, Italy.); Dimitris N. Politis (University of California, San Diego, USA) |
| Abstract: | In this paper we contribute several new results on the NoVaS transformation approach for volatility forecasting introduced by Politis (2003a,b, 2007). In particular: (a) we introduce an alternative target distribution (uniform); (b) we present a new method for volatility forecasting using NoVaS ; (c) we show that the NoVaS methodology is applicable in situations where (global) stationarity fails such as the cases of local stationarity and/or structural breaks; (d) we show how to apply the NoVaS ideas in the case of returns with asymmetric distribution; and finally (e) we discuss the application of NoVaS to the problem of estimating value at risk (VaR). The NoVaS methodology allows for a flexible approach to inference and has immediate applications in the context of short time series and series that exhibit local behavior (e.g. breaks, regime switching etc.) We conduct an extensive simulation study on the predictive ability of the NoVaS approach and find that NoVaS forecasts lead to a much ÔtighterÕ distribution of the forecasting performance measure for all data generating processes. This is especially relevant in the context of volatility predictions for risk management. We further illustrate the use of NoVaS for a number of real datasets and compare the forecasting performance of NoVaS -based volatility forecasts with realized and range-based volatility measures. |
| Keywords: | ARCH, GARCH, local stationarity, structural breaks, VaR, volatility. |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:44-07&r=for |
| By: | Axel Dreher; Silvia Marchesi; James Raymond Vreeland |
| Abstract: | Using panel data for 157 countries over the period 1999-2005 we empirically investigate the politics involved in IMF economic forecasts. We find a systematic bias in growth and inflation forecasts. Our results indicate that countries voting in line with the US in the UN General Assembly receive lower inflation forecasts. As the US is the Fund’s major shareholder, this result supports the hypothesis that the Fund’s forecasts are not purely based on economic considerations. We further find inflation forecasts are systematically biased downwards for countries with greater IMF loans outstanding relative to GDP, indicating that the IMF engages in “defensive forecasting.” Countries with a fixed exchange rate regime also receive low inflation forecasts. Considering the detrimental effects that inflation can have under such an exchange rate regime, we consider this evidence consistent with the Fund’s desire to preserve economic stability. |
| Keywords: | IMF; Economic Forecasts; Political Influence |
| JEL: | C23 D72 F33 F34 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:124&r=for |
| By: | Qiang Li (Max Planck Institute for Demographic Research, Rostock, Germany); Mieke Reuser (Max Planck Institute for Demographic Research, Rostock, Germany); Cornelia Kraus (Max Planck Institute for Demographic Research, Rostock, Germany); Juha Alho |
| Abstract: | This paper presents a stochastic population forecast for China with a special emphasis on population aging. Stochastic forecasting methods have the advantage of producing a projection of the future population including a probabilistic prediction interval. The socalled scaled model for error was used to quantify the uncertainty attached to the population predictions in this study. Data scarcity was a major problem in the specification of the expected error of the population forecast. Therefore, the error structures estimated for European countries were employed with some modifications taking the large size and heterogeneity of the Chinese population into account. The stochastic forecast confirms the expectation of extremely rapid population aging during the first half of the 21st century in China. The old age dependency ratio (OADR) will increase with certainty. By mid-century, with 80% probability, the OADR will lie between 0.41 and 0.56, with the median of the predictive distribution being 0.48, nearly five-fold its current value of 0.1. In particular, the oldest-old population will grow faster than any other age group. This development has major implications for China: to smoothly adjust current birth control policies to less restrictive ones, strengthen the family support system, and improve the social security system for the elderly. |
| Keywords: | China |
| JEL: | J1 Z0 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:dem:wpaper:wp-2007-032&r=for |
| By: | Pål Boug and Andreas Fagereng (Statistics Norway) |
| Abstract: | During the last decades Norwegian exporters have ƒ{ despite various forms of exchange rate targeting ƒ{ faced a rather volatile exchange rate which may have influenced their behaviour. Recently, the shift to inflation targeting and a freely floating exchange rate has brought about an even more volatile exchange rate. We examine the causal link between export performance and exchange rate volatility across different monetary policy regimes within the cointegrated VAR framework using the implied conditional variance from a GARCH model as a measure of volatility. Although treating the volatility measure as either a stationary or a non-stationary variable in the VAR, we are not able to find any evidence suggesting that export performance has been significantly affected by exchange rate uncertainty. We find, however, that volatility changes proxied by blip dummies related to the monetary policy change from a fixed to a managed floating exchange rate and the Asian financial crises during the 1990s enter significantly in a dynamic model for export growth ƒ{ in which the level of relative prices and world market demand together with the level of exports constitute a significant cointegration relationship. A forecasting exercise on the dynamic model rejects the hypothesis that increased exchange rate volatility in the wake of inflation targeting in the monetary policy has had a significant impact on export performance. |
| Keywords: | Exports; exchange rate volatility; GARCH; CVAR; forecasting |
| JEL: | C51 C52 F14 F17 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:522&r=for |