Advanced Search
MyIDEAS: Login to save this article or follow this journal

A panel data approach to economic forecasting: The bias-corrected average forecast

Contents:

Author Info

  • Issler, João Victor
  • Lima, Luiz Renato

Abstract

In this paper, we propose a novel approach to econometric forecasting of stationary and ergodic time series within a panel-data framework. Our key element is to employ the (feasible) bias-corrected average forecast. Using panel-data sequential asymptotics we show that it is potentially superior to other techniques in several contexts. In particular, it is asymptotically equivalent to the conditional expectation, i.e., has an optimal limiting mean-squared error. We also develop a zero-mean test for the average bias and discuss the forecast-combination puzzle in small and large samples. Monte-Carlo simulations are conducted to evaluate the performance of the feasible bias-corrected average forecast in finite samples. An empirical exercise, based upon data from a well known survey is also presented. Overall, these results show promise for the feasible bias-corrected average forecast.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VC0-4VBMNJV-3/2/b208718a31167259e4d008a42b6bff80
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 152 (2009)
Issue (Month): 2 (October)
Pages: 153-164

as in new window
Handle: RePEc:eee:econom:v:152:y:2009:i:2:p:153-164

Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Forecast combination Forecast-combination puzzle Common features Panel-data Bias-corrected average forecast;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Todd E. Clark & Michael W. McCracken, 2006. "Combining forecasts from nested models," Research Working Paper, Federal Reserve Bank of Kansas City RWP 06-02, Federal Reserve Bank of Kansas City.
  2. Marco Aiolfi & Carlos Capistrán & Allan Timmermann, 2010. "Forecast Combinations," Working Papers 2010-04, Banco de México.
  3. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  4. Gary Chamberlain & Michael Rothschild, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," NBER Working Papers 0996, National Bureau of Economic Research, Inc.
  5. Amemiya, Takeshi, 1971. "The Estimation of the Variances in a Variance-Components Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(1), pages 1-13, February.
  6. Vahid, F. & Issler, J.V., 2001. "The Importance Of Common Cyclical Features in VAR Analysis: A Monte-Carlo Study," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 2/01, Monash University, Department of Econometrics and Business Statistics.
  7. Danny Quah, 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," FMG Discussion Papers, Financial Markets Group dp171, Financial Markets Group.
  8. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 967-1012, 07.
  9. Vahid, Farshid & Engle, Robert F., 1997. "Codependent cycles," Journal of Econometrics, Elsevier, Elsevier, vol. 80(2), pages 199-221, October.
  10. Harrison Hong & Jeffrey D. Kubik & Amit Solomon, 2000. "Security Analysts' Career Concerns and Herding of Earnings Forecasts," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 121-144, Spring.
  11. David F. Hendry & Michael P. Clements, 2004. "Pooling of forecasts," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 1-31, 06.
  12. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
  13. Phillips, Peter C.B. & Moon, Hyungsik Roger & Xiao, Zhijie, 2001. "How To Estimate Autoregressive Roots Near Unity," Econometric Theory, Cambridge University Press, vol. 17(01), pages 29-69, February.
  14. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1057-1112, September.
  15. Roy Batchelor, 2007. "Forecaster Behaviour and Bias in Macroeconomic Forecasts," Ifo Working Paper Series Ifo Working Paper No. 39, Ifo Institute for Economic Research at the University of Munich.
  16. Jushan Bai & Serena Ng, 2004. "Evaluating Latent and Observed Factors in Macroeconomics and Financ," Econometrics, EconWPA 0408007, EconWPA.
  17. Giacomini, Raffaella & White, Halbert, 2003. "Tests of Conditional Predictive Ability," University of California at San Diego, Economics Working Paper Series qt5jk0j5jh, Department of Economics, UC San Diego.
  18. Stock, James H. & Watson, Mark W., 2006. "Forecasting with Many Predictors," Handbook of Economic Forecasting, Elsevier, Elsevier.
  19. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2004. "The generalized dynamic factor model consistency and rates," Journal of Econometrics, Elsevier, Elsevier, vol. 119(2), pages 231-255, April.
  20. Lamont, Owen A., 2002. "Macroeconomic forecasts and microeconomic forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 265-280, July.
  21. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(2), pages 147-62, April.
  22. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
  23. Robert F. Engle & João Victor Issler, 1993. "Common trends and common cycles in Latin America," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 47(2), pages 149-176, April.
  24. Clements, Michael P & Hendry, David F, 1996. "Intercept Corrections and Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(5), pages 475-94, Sept.-Oct.
  25. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
  26. Forni M. & Hallin M., 2003. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," Computing in Economics and Finance 2003 143, Society for Computational Economics.
  27. Elliott, Graham & Timmermann, Allan, 2002. "Optimal Forecast Combination Under General Loss Functions and Forecast Error Distributions," University of California at San Diego, Economics Working Paper Series qt15r9t2q2, Department of Economics, UC San Diego.
  28. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 293-318, February.
  29. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features: Reply," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(4), pages 393-95, October.
  30. Hoogstrate, Andre J & Palm, Franz C & Pfann, Gerard A, 2000. "Pooling in Dynamic Panel-Data Models: An Application to Forecasting GDP Growth Rates," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 18(3), pages 274-83, July.
  31. Connor, Gregory & Korajczyk, Robert A, 1993. " A Test for the Number of Factors in an Approximate Factor Model," Journal of Finance, American Finance Association, vol. 48(4), pages 1263-91, September.
  32. Kenneth D. West, 1994. "Asymptotic Inference About Predictive Ability," Macroeconomics, EconWPA 9410002, EconWPA.
  33. Baltagi, Badi H, 1980. "On Seemingly Unrelated Regressions with Error Components," Econometrica, Econometric Society, Econometric Society, vol. 48(6), pages 1547-51, September.
  34. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 47(3), pages 449-475, June.
  35. Fuller, Wayne A. & Battese, George E., 1974. "Estimation of linear models with crossed-error structure," Journal of Econometrics, Elsevier, Elsevier, vol. 2(1), pages 67-78, May.
  36. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 21-40, February.
  37. Engle, Robert F. & Issler, Joao Victor, 1995. "Estimating common sectoral cycles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 35(1), pages 83-113, February.
  38. Issler, J.V. & Vahid, F., 2001. "The Missing Link: Using the NBER Recession Indicator to Construct Coincident and Leading Indices of Economic Activity," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 9/01, Monash University, Department of Econometrics and Business Statistics.
  39. Davies, Anthony & Lahiri, Kajal, 1995. "A new framework for analyzing survey forecasts using three-dimensional panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 205-227, July.
  40. Heejoon Kang, 1986. "Unstable Weights in the Combination of Forecasts," Management Science, INFORMS, INFORMS, vol. 32(6), pages 683-695, June.
  41. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  42. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 293-335, October.
  43. Engle, Robert F & Kozicki, Sharon, 1993. "Testing for Common Features," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(4), pages 369-80, October.
  44. Connor, Gregory & Korajczyk, Robert A., 1986. "Performance measurement with the arbitrage pricing theory : A new framework for analysis," Journal of Financial Economics, Elsevier, Elsevier, vol. 15(3), pages 373-394, March.
  45. John R. Graham, 1999. "Herding among Investment Newsletters: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(1), pages 237-268, 02.
  46. PALM, Franz C. & ZELLNER, Arnold, . "To Combine or not to Combine? Issues of Combining Forecasts," CORE Discussion Papers RP -1027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  47. Araújo, Fabio & Issler, João Victor & Fernandes, Marcelo, 2006. "A Stochastic Discount Factor Approach to Asset Pricing Using Panel Data," Economics Working Papers (Ensaios Economicos da EPGE) 628, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  48. Lima, Luiz Renato & Xiao, Zhijie, 2007. "Do shocks last forever? Local persistency in economic time series," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(1), pages 103-122, March.
  49. Batchelor, Roy, 2007. "Bias in macroeconomic forecasts," International Journal of Forecasting, Elsevier, Elsevier, vol. 23(2), pages 189-203.
  50. Patton, Andrew J. & Timmermann, Allan, 2007. "Testing Forecast Optimality Under Unknown Loss," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 102, pages 1172-1184, December.
  51. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, 9.
  52. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, Elsevier, vol. 92(1), pages 1-45, September.
  53. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  54. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  55. Clements, Michael P. & Hendry, David F., 2006. "Forecasting with Breaks," Handbook of Economic Forecasting, Elsevier, Elsevier.
  56. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002, Royal Economic Society 9, Royal Economic Society.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marcelo C. Medeiros & Eduardo F. Mendes, 2012. "Estimating High-Dimensional Time Series Models," CREATES Research Papers 2012-37, School of Economics and Management, University of Aarhus.
  2. Alev Atak & Oliver Linton & Zhijie Xiao, 2011. "A semiparametric panel model for unbalanced data with application to climate change in the United Kingdom," Post-Print hal-00844810, HAL.
  3. Issler, João Victor & Rodrigues, Claudia & Burjack, Rafael, 2014. "Using common features to understand the behavior of metal-commodity prices and forecast them at different horizons," Journal of International Money and Finance, Elsevier, Elsevier, vol. 42(C), pages 310-335.
  4. Colino, Evelyn V. & Irwin, Scott H. & Garcia, Philip & Etienne, Xiaoli, 2012. "Composite and Outlook Forecast Accuracy," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), August.
  5. Wagner Piazza Gaglianone & Luiz Renato Lima, 2014. "Constructing Optimal Density Forecasts From Point Forecast Combinations," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(5), pages 736-757, 08.
  6. Wagner Piazza Gaglianone & Luiz Renato Lima & Oliver Linton & Daniel Smith, 2010. "Evaluating Value-at-Risk Models via Quantile Regression," NCER Working Paper Series, National Centre for Econometric Research 67, National Centre for Econometric Research.
  7. Poncela, Pilar & Rodríguez, Julio & Sánchez-Mangas, Rocío & Senra, Eva, 2011. "Forecast combination through dimension reduction techniques," International Journal of Forecasting, Elsevier, Elsevier, vol. 27(2), pages 224-237.
  8. Colino, Evelyn V. & Irwin, Scott H. & Garcia, Philip, 2009. "Do Composite Procedures Really Improve the Accuracy of Outlook Forecasts?," 2009 Conference, April 20-21, 2009, St. Louis, Missouri, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 53052, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:152:y:2009:i:2:p:153-164. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.