Macroeconomic forecasting during the Great Recession: The return of non-linearity?
AbstractThe 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 InfoPaper provided by Banque de France in its series Working papers with number 383.
Length: 36 pages
Date of creation: 2012
Date of revision:
Forecasting; Non-linear models; Great Recession.;
Other versions of this item:
- Ferrara, Laurent & Marcellino, Massimiliano & Mogliani, Matteo, 2013. "Macroeconomic forecasting during the Great Recession: The return of non-linearity?," CEPR Discussion Papers 9313, C.E.P.R. Discussion Papers.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-13 (All new papers)
- NEP-FOR-2012-06-13 (Forecasting)
- NEP-MAC-2012-06-13 (Macroeconomics)
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- 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.
- Barnett, Alina & Mumtaz, Haroon & Theodoridis, Konstantinos, 2014. "Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters," International Journal of Forecasting, Elsevier, vol. 30(1), pages 129-143.
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