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on Forecasting |
| By: | Onur Ince |
| Abstract: | This paper evaluates out-of-sample exchange rate forecasting with Purchasing Power Parity (PPP) and Taylor rule fundamentals for 9 OECD countries vis-à-vis the U.S. dollar over the period from 1973:Q1 to 2009:Q1 at short and long horizons. In contrast with previous work, which reports “forecasts” using revised data, I construct a quarterly real-time dataset that incorporates only the information available to market participants when the forecasts are made. Using bootstrapped out-of-sample test statistics, the exchange rate model with Taylor rule fundamentals performs better at the one-quarter horizon and panel estimation is not able to improve its performance. The PPP model, however, forecasts better at the 16-quarter horizon and its performance increases in panel framework. The results are in accord with previous research on long-run PPP and Taylor rule models. Key Words: Exchange Rate Forecasting, Taylor Rules, Real-Time Data, Out-of-Sample Test Statistics |
| JEL: | C23 C53 E32 E52 F31 F47 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:13-04&r=for |
| By: | Periklis Gogas (Department of International Economic Relations and Development, Democritus University of Thrace, Greece); Theophilos Papadimitriou (Department of International Economic Relations and Development, Democritus University of Thrace, Greece); Elvira Takli (Department of International Economic Relations and Development, Democritus University of Thrace, Greece) |
| Abstract: | In this study we compare the forecasting ability of the simple sum and Divisia monetary aggregates with respect to U.S. gross domestic product. We use two alternative Divisia aggregates, the series produced by the Center for Financial Stability (CFS Divisia) and the ones produced by the Federal Reserve Bank of St. Louis (MSI Divisia). The empirical analysis is done within a machine learning framework employing a Support Vector Regression (SVR) model equipped with two kernels: the linear and the radial basis function kernel. Our training data span the period from 1967Q1 to 2007Q4 and the out-of-sample forecasts are performed on a one quarter ahead forecasting horizon on the period 2008Q1 to 2011Q4. Our tests show that the Divisia monetary aggregates are superior to the simple sum monetary aggregates in terms of standard forecast evaluation statistics. |
| Keywords: | GDP forecasting; SVR; Simple Sum; Divisia |
| JEL: | C22 E47 E50 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:04_13&r=for |
| By: | Maritta Paloviita (Bank of Finland); Matti Viren (Bank of Finland, University of Turku) |
| Abstract: | This paper studies professional forecasts on a micro level using three alternative data sets. The analysis is mainly based on the ECB Survey of Professional Forecasts for the euro area, but for comparison, Consensus Economics survey and the Survey of Professional Forecasts for the US are also investigated. We examine internal consistency of individual inflation and real GDP growth forecasts by estimating alternative specifications of the Phillips curve on a micro level. We also explore forecast uncertainty using two alternative measures, i.e. conventional standard deviation of individual point forecasts and the median values of individual forecasters’ uncertainty based on subjective probability distributions of survey respondents. Our analysis indicates that individual forecasters deviate systematically from each other. Moreover, inflation uncertainty is closely related to the output growth uncertainty. In forming expectations, individual forecasters seem to behave according to the hybrid specification of the New Keynesian Phillips curve. The results also indicate that inflation uncertainty has a negative impact on economic activity by increasing inflation and lowering the price sensitiveness of aggregate supply. |
| Keywords: | Forecasting, Survey data, Expectations, Phillips curve |
| JEL: | C53 E37 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:140&r=for |
| By: | Hector Manuel Zárate Solano; Angélica Rengifo Gómez |
| Abstract: | This paper investigates whether transforming the Consumer Price Index with a class of power transformations lead to an improvement of inflation forecasting accuracy. We use one of the prototypical models to forecast short run inflation which is known as the univariate time series ARIMA . This model is based on past inflation which is traditionally approximated by the difference of logarithms of the underlying consumer price index. The common practice of applying the logarithm could damage the forecast precision if this transformation does not stabilize the variance adequately. In this paper we investigate the benefits of incorporating these transformations using a sample of 28 countries that has adopted the inflation targeting framework. An appropriate transformation reduces problems with estimation, prediction and inference. The choice of the parameter is done by bayesian grounds. |
| Keywords: | ARIMA models, power transformations, seasonality, bayesian analysis. Classification JEL:C22, C52 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:756&r=for |
| By: | Héctor Manuel Záarte Solano; Angélica Rengifo Gómez |
| Abstract: | This paper investigates whether transforming the Consumer Price Index with a class of power transformations lead to an improvement of inflation forecasting accuracy. We use one of the prototypical models to forecast short run inflation which is known as the univariate time series ARIMA . This model is based on past inflation which is traditionally approximated by the difference of logarithms of the underlying consumer price index. The common practice of applying the logarithm could damage the forecast precision if this transformation does not stabilize the variance adequately. In this paper we investigate the benefits of incorporating these transformations using a sample of 28 countries that has adopted the inflation targeting framework. An appropriate transformation reduces problems with estimation, prediction and inference. The choice of the parameter is done by bayesian grounds. |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:010462&r=for |
| By: | Onur Ince; Tanya Molodtsova |
| Abstract: | This paper revisits the long-standing Meese and Rogoff puzzle by examining the importance of real-time data for exchange rate forecasting. Most of the existing literature on exchange rate predictability uses recent historical data, which are not available to the public at the time the forecasts are made. This paper evaluates short- and long-horizon out-of-sample exchange rate predictability using Purchasing Power Parity (PPP) and Taylor rule fundamentals for 16 OECD currencies during the post-Bretton Woods era. Comparing the results with real-time and revised data, the evidence of short-run exchange rate predictability with Taylor rule models is stronger with real-time data. The models with Taylor rule fundamentals outperform the naïve no-change model at the 1-quarter horizon for 8 out of 16 currencies vis-à-vis the U.S. dollar with real-time data and for 6 out of 16 currencies with revised data, with the strongest evidence coming from specifications that incorporate heterogeneous coefficients. The evidence of short-run predictability is much stronger with Taylor rule models than with conventional purchasing power parity model regardless of which type of data is used. The out-of-sample performance of both PPP and Taylor rule fundamentals improves at longer horizons, with PPP model performing best in the long run. At the 16-quarter horizon, the models with Taylor rule fundamentals outperform the random walk for 10 out of 16 currencies vis-à-vis the U.S. dollar with either type of data, while the PPP model outperforms the naïve no-change model for 13 out of 16 currencies with real-time data and for 11 out of 16 currencies with revised data. Key Words: |
| JEL: | C2 E5 F3 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:13-03&r=for |
| By: | María del Carmen Ramos-Herrera (Universidad Complutense de Madrid. Instituto Complutense de Estudios Internacionales (ICEI)); Simon Sosvilla-Rivero (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid),) |
| Abstract: | We examine the predictive ability, the consistency properties and the possible driving forces of inflation expectations, using a survey conducted in Spain by PwC among a panel of experts and entrepreneurs. When analysing the headline inflation rate, our results suggest that the PwC panel has some forecasting ability for time horizons from 3 to 9, improving when it comes to predict the core inflation rate. Nevertheless, the results indicate that predictions made by survey participants are neither unbiased nor efficient predictors of future inflation rates, regardless of the measures of inflation used. As for the consistency properties of the inflation expectations formation process, we find that panel members form stabilising expectations in the case of the headline inflation rate, both in the short and in the long-run, although in the case of the core inflation rate, consistency remains indeterminate. Finally, we find that inflation expectations are very persistent and that they appear to incorporate the information content of some macroeconomic variables (current core inflation and growth rate, the USD/EUR exchange rate, the ECB inflation target and changes in the ECB official short-term interest rate). |
| Keywords: | Inflation, Forecasting, Expectations, Panel data, Econometric models. |
| JEL: | E31 D84 C33 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1308&r=for |
| By: | Claudia Foroni (Norges Bank (Central Bank of Norway)); Massimiliano Marcellino (European University Institute, Bocconi University and CEPR) |
| Abstract: | The development of models for variables sampled at di¤erent frequencies has attracted substantial interest in the recent econometric literature. In this paper we provide an overview of the most common techniques, including bridge equations, MIxed DAta Sampling (MIDAS) models, mixed frequency VARs, and mixed frequency factor models. We also consider alternative techniques for handling the ragged edge of the data, due to asynchronous publication. Finally, we survey the main empirical applications based on alternative mixed frequency models |
| Keywords: | mixed-frequency data, mixed-frequency VAR, MIDAS, nowcasting, forecasting |
| JEL: | E37 C53 |
| Date: | 2013–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2013_06&r=for |
| By: | Banerjee, Swagata (Ban) |
| Keywords: | Resource /Energy Economics and Policy, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saea13:143062&r=for |
| By: | Banu Simmons-Süer (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | This paper attempts to find an aggregate leading indicator to predict the spreads observed for high-yield (HY) bond indices. Using a vector error correction (VEC) specification for quarterly data, we establish a long-term equilibrium relationship between the HY market spreads and its determinants, which stem from the interaction between the loan market via the banking sector and the HY market. The paper also attempts to explain the dynamic behavior of spreads by approximating the factors behind the credit and liquidity risk components. The out-of-sample forecasting properties of the resultant econometric model are shown to be superior to naïve models. |
| Keywords: | High Yield Bond Spreads, Vector Error Correction, Loan Market, Leading Indicator |
| JEL: | G12 G15 G17 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-328&r=for |
| By: | Olivier J. Blanchard; Daniel Leigh |
| Abstract: | This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis. |
| JEL: | E32 E62 H20 H5 H68 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18779&r=for |
| By: | Silvia Figini (Department of Economics and Management, University of Pavia); Paolo Giudici (Department of Economics and Management, University of Pavia) |
| Abstract: | Model uncertainty remains a challenge to researchers in different applications. When many competing models are available for estimation, and without enough guidance from theory, model averaging represents an alternative to model selection. Despite model averaging approaches have been present in statistics for many years, only recently they are starting to receive attention in applications. The Bayesian Model Averaging (BMA) approach sometimes can be difficult in terms of applicability, mainly because of the following reasons: firstly two types of priors need to be elicited and secondly the number of models under consideration in the model space is often huge, so that the computational aspects can be prohibitive. In this paper we show how Bayesian model averaging can be usefully employed to obtain a well calibrated model, in terms of predictive accuracy for credit risk problems. In this paper we shall investigate how BMA performs in comparison with classical and Bayesian (single) selected models using two real credit risk databases. |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:034&r=for |
| By: | Robert E. Hall |
| Abstract: | Using a recursive empirical model of the real interest rate, GDP growth, and the primary government deficit in the U.S., I solve for the ergodic distribution of the debt/GDP ratio. If such a distribution exists, the government is satisfying its intertemporal budget constraint. One key finding is that historical fiscal policy would bring the current high debt ratio back to its normal level of 0.35 over the coming decade. Forecasts of continuing increases in the ratio over the decade make the implicit assumption that fiscal policy has shifted dramatically. In the variant of the model that matches the forecast, the government would not satisfy its intertemporal budget constraint if the policy was permanent. The willingness of investors to hold U.S. government debt implies a belief that the high-deficit policy is transitory. |
| JEL: | C58 E62 H63 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18797&r=for |