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on Forecasting |
| By: | Barbara Rossi; Atsushi Inoue |
| Abstract: | This paper proposes new methodologies for evaluating out-of-sample forecasting performance that are robust to the choice of the estimation window size. The methodologies involve evaluating the predictive ability of forecasting models over a wide range of window sizes. The authors show that the tests proposed in the literature may lack the power to detect predictive ability and might be subject to data snooping across different window sizes if used repeatedly. An empirical application shows the usefulness of the methodologies for evaluating exchange rate models' forecasting ability. |
| Keywords: | Forecasting |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:11-31&r=for |
| By: | Joshua C C Chan; Gary Koop; Roberto Leon-Gonzales; Rodney W Strachan |
| Abstract: | Time varying parameter (TVP) models have enjoyed an increasing popularity in empirical macroeconomics. However, TVP models are parameter-rich and risk over-fitting unless the dimension of the model is small. Motivated by this worry, this paper proposes several Time Varying Dimension (TVD) models where the dimension of the model can change over time, allowing for the model to automatically choose a more parsimonious TVP representation, or to switch between different parsimonious representations. Our TVD models all fall in the category of dynamic mixture models. We discuss the properties of these models and present methods for Bayesian inference. An application involving US inflation forecasting illustrates and compares the different TVD models. We find our TVD approaches exhibit better forecasting performance than many standard benchmarks and shrink towards parsimonious specifications. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2011-28&r=for |
| By: | Pami Dua (Department of Economics, Delhi School of Economics, Delhi, India); ANIRVAN BANERJI (Economic Cycle Research Institute (ECRI) New York) |
| Abstract: | This paper defines business and growth rate cycles and describes the importance of key coincident indicators and reference chronologies, following reflections on the definition of a recession. The robustness of turning point forecasts based on the indicator approach to business and growth rate cycles is discussed. Since economies undergo structural changes over the course of a business cycle, and rapid structural changes are characteristic of developing economies in particular, practical methods for the analysis and prediction of business cycles need to be robust to such shifts. The recent Great Recession also underscores why “this time, it’s different” should not be considered a valid excuse for forecasting failure. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:202&r=for |
| By: | D. Filiz Unsal; Carolina Osorio; Runchana Pongsaparn |
| Abstract: | We propose a new Financial Condition Index (FCI) for Asian economies based on two different methodologies: a VAR model and a Dynamic Factor Model. The paper shows that this index has predictive power in forecasting GDP growth and may be thus used as a leading indicator. Based on the FCI, financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in the stock markets and tighter credit conditions. In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, thanks to accommodative monetary policies and a rapid rebound in regional equity markets. |
| Keywords: | Asia , Economic growth , Economic conditions , Financial sector , Forecasting models , Global Financial Crisis 2008-2009 , Gross domestic product , |
| Date: | 2011–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/170&r=for |
| By: | Chang, Kuang Liang; Chen, Nan Kuang; Leung, Charles Ka Yui |
| Abstract: | We examine how the fluctuations in financial and housing markets in U.S. affect the asset returns and GDP in Hong Kong. In contrast to the results from linear specifications, which concludes that the U.S. and Hong Kong are virtually delinked in terms of the asset markets, our regime-switching models indicate that the unexpected shock of US stock returns, followed by the TED spread, has the most significant effect on HK asset returns and GDP, typically in the regime with high return and low volatility. For the in-sample one-step-ahead forecasting, US Term spread stands out to be the best predictor. |
| Keywords: | currency board; fixed nominal exchange rate; international transmission mechanism; hierarchical Markov regime-switching model; vector autoregressive model |
| JEL: | F40 E30 G10 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32776&r=for |
| By: | Victor Duarte Lledo; Marcos Poplawski-Ribeiro |
| Abstract: | This paper investigates economic, political, and institutional constraints to fiscal policy implementation in sub-saharan Africa. We find that planned fiscal adjustments or expansions are less likely to be implemented the larger they are, the more inaccurate the growth forecasts they are based on, the more fragile the regulatory system in the country, and the weaker the institutions framing the design, approval, and execution of the budget. The findings support ongoing efforts in the region to improve the quality and timeliness of economic data; enhance forecasting capacity; adopt realistic fiscal plans; and strengthen governance, budgetary institutions, and public financial management procedures. |
| Keywords: | Budgets , Cross country analysis , Economic models , Fiscal policy , Government expenditures , Revenues , Sub-Saharan Africa , |
| Date: | 2011–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/172&r=for |