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Error-correction versus Differencing in Macroeconomic Forecasting

Author

Listed:
  • Eitrheim, O.
  • Husebo, T.A.
  • Nymoen, R.

Abstract

Recent work by Clements and Hendry have shown why forecasting systems that are in terms of differences, dVARs, can be more accurate than econometric models that include levels variables, ECMs. For example, dVAR forecasts are insulated from parameter non-constancies in the long run mean of the cointegration relationships. In this paper, the practical relevance of these issues are investigated for RIMINI, the quarterly model of the Central Bank of Norway, which we take as an example of an ECM forecasting model.

Suggested Citation

  • Eitrheim, O. & Husebo, T.A. & Nymoen, R., 1998. "Error-correction versus Differencing in Macroeconomic Forecasting," Memorandum 01/1998, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:1998_001
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/1998/Memo-01-1998.pdf
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    Cited by:

    1. Guo, Zi-Yi, 2017. "Comparison of Error Correction Models and First-Difference Models in CCAR Deposits Modeling," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(4).

    More about this item

    Keywords

    FORECASTS ; MACROECONOMICS;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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