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Changes in predictive ability with mixed frequency data

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  • Galvão, Ana Beatriz

Abstract

When assessing the predictive power of financial variables for economic activity, researchers usually aggregate higher-frequency data before estimating a forecasting model that assumes the relationship between the financial variable and the dependent variable to be linear. This paper proposes a model called smooth transition mixed data sampling (STMIDAS) regression, which relaxes both of these assumptions. Simulation exercises indicate that the improvements in forecasting accuracy from the use of mixed data sampling are larger in nonlinear than in linear specifications. When forecasting output growth with financial variables in real time, statistically significant improvements over a linear regression are more likely to arise from forecasting with STMIDAS than with MIDAS regressions.

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File URL: http://www.sciencedirect.com/science/article/pii/S0169207012001689
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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 29 (2013)
Issue (Month): 3 ()
Pages: 395-410

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Handle: RePEc:eee:intfor:v:29:y:2013:i:3:p:395-410

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Web page: http://www.elsevier.com/locate/ijforecast

Related research

Keywords: Smooth transition; MIDAS; Predictive ability; Financial indicators; Economic activity;

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Cited by:
  1. Claudia Foroni & Massimiliano Marcellino, 2013. "A survey of econometric methods for mixed-frequency data," Working Paper 2013/06, Norges Bank.

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