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Macroeconomic forecasting during the Great Recession: The return of non-linearity?

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  • Ferrara, L.
  • Marcellino, M.
  • Mogliani, M.

Abstract

The debate on the forecasting ability in economics of non-linear models has a long history, and the Great Recession provides us with an opportunity for a re-assessment of the forecasting performance of several classes of non-linear models, widely used in applied macroeconomic research. In this paper, we carry out an extensive analysis over a large quarterly database consisting of major real, nominal and financial variables for a large panel of OECD member countries. It turns out that, on average, non-linear models do not outperform standard linear specifications, even during the Great Recession period. In spite of this result, non-linear models enable to improve forecast accuracy in almost 40% of cases. Especially some countries and/or variables appear to be more adapted to non-linear forecasting.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 383.

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Length: 36 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:383

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Keywords: Forecasting; Non-linear models; Great Recession.;

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Cited by:
  1. Barnett, Alina & Mumtaz, Haroon & Theodoridis, Konstantinos, 2012. "Forecasting UK GDP growth, inflation and interest rates under structural change: a comparison of models with time-varying parameters," Bank of England working papers 450, Bank of England.

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