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Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters

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  • Barnett, Alina
  • Mumtaz, Haroon
  • Theodoridis, Konstantinos

Abstract

Evidence from a large and growing body of empirical literature strongly suggests that there have been changes in the inflation and output dynamics in the United Kingdom. The majority of these papers base their results on a class of econometric models that allows for time-variation in the coefficients and volatilities of shocks. While these models have been used extensively for studying evolving dynamics and for structural analysis, there has been little evidence that they are useful for forecasting UK output growth and inflation. This paper attempts to fill this gap by comparing the performances of a wide range of time-varying parameter models in forecasting output growth and inflation. We find that allowing for time-varying parameters can lead to large and statistically significant gains in forecast accuracy.

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Bibliographic Info

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

Volume (Year): 30 (2014)
Issue (Month): 1 ()
Pages: 129-143

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Handle: RePEc:eee:intfor:v:30:y:2014:i:1:p:129-143

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

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Keywords: Time-varying parameters; Regime switching; Vector autoregressions; Forecast comparison;

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Cited by:
  1. Mehmet Balcilar & Rangan Gupta & Anandamayee Majumdar & Stephen M. Miller, 2012. "Was the Recent Downturn in US GDP Predictable?," Working Papers 201230, University of Pretoria, Department of Economics.
  2. Michael Wickens, 2014. "How Useful are DSGE Macroeconomic Models for Forecasting?," Open Economies Review, Springer, vol. 25(1), pages 171-193, February.
  3. Bergmeir, Christoph & Costantini, Mauro & Benítez, José M., 2014. "On the usefulness of cross-validation for directional forecast evaluation," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 132-143.

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