The use of log-transformed data has become standard in macroeconomic forecasting with VAR models. However, its appropriateness in the context of out-of-sample forecasts has not yet been exposed to a thorough empirical investigation. With the aim of filling this void, a broad sample of VAR models is employed in a multi-country setup and approximately 16 Mio. pseudo-out-of-sample forecasts are evaluated. The results show that, on average, the knee-jerk transformation of the data is at best harmless.
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Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number
Ifo Working Paper No. 42.
Find related papers by JEL classification: C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications