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Forecasting Substantial Data Revisions in the Presence of Model Uncertainty

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  • Anthony Garratt

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Gary Koop
  • Shaun P. Vahey

Abstract

A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this paper, we compute the probability of “substantial revisions” that are greater (in absolute value) than the controversial 2003 revision. The predictive densities are derived from Bayesian model averaging over a wide set of forecasting models including linear, structural break and regime-switching models with and without heteroskedasticity. Ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures recent improvements in the quality of preliminary UK macroeconomic measurements.

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File URL: http://www.ems.bbk.ac.uk/research/wp/PDF/BWPEF0617.pdf
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Bibliographic Info

Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0617.

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Date of creation: Dec 2006
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Handle: RePEc:bbk:bbkefp:0617

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Keywords: Revisions; Structural Breaks; Regime Switching; Model Uncertainty; Bayesian Model Averaging; Predictive Densities.;

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  1. Faust, Jon & Rogers, John H & Wright, Jonathan H, 2005. "News and Noise in G-7 GDP Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 403-19, June.
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  10. Egginton, Donald & Andreas Pick & Shaun P. Vahey, 2002. "Keep It Real!: A Real-time UK Macro Data Set," Royal Economic Society Annual Conference 2002 69, Royal Economic Society.
  11. Gary Koop & Simon M. Potter, 2004. "Dynamic asymmetries in US unemployment," ESE Discussion Papers 15, Edinburgh School of Economics, University of Edinburgh.
  12. Anthony Garratt & Gary Koop & Shaun P. Vahey, 2006. "Forecasting Substantial Data Revisions in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2006/02, Reserve Bank of New Zealand.
  13. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Forecasting output with the composite leading index: an ex ante analysis," Finance and Economics Discussion Series 90, Board of Governors of the Federal Reserve System (U.S.).
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  15. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
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  17. Swanson, Norman R. & van Dijk, Dick, 2006. "Are Statistical Reporting Agencies Getting It Right? Data Rationality and Business Cycle Asymmetry," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 24-42, January.
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