Long-Memory Forecasting of U.S. Monetary Indices
AbstractSeveral studies have tested for long-range dependence in macroeconomic and financial time series but very few have assessed the usefulness of long-memory models as forecast generating mechanisms. This study tests for fractional differencing in the U.S. monetary indices (simple sum and divisia) and compares the out-of-sample fractional forecasts to benchmark forecasts. The long-memory parameter is estimated using RobinsonÃ•s Gaussian semiparametric and multivariate log-periodogram methods. The evidence amply suggests that the monetary series possess a fractional order between one and two. Fractional out-of-sample forecasts are consistently more accurate (with the exception of the M3 series) than benchmark autoregressive forecasts but the forecasting gains are not generally statistically significant. In terms of forecast encompassing, the fractional model encompasses the autoregressive model for the divisia series but neither model encompasses the other for the simple sum series.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 558.
Length: 23 pages
Date of creation: 01 May 2003
Date of revision:
Publication status: published, Journal of Forecasting, 2006, 25, 291-302
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
long memory; ARFIMA model; macroeconomic forecasting.;
Other versions of this item:
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-05-08 (All new papers)
- NEP-ECM-2003-05-15 (Econometrics)
- NEP-ETS-2003-05-08 (Econometric Time Series)
- NEP-MAC-2003-05-08 (Macroeconomics)
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