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Forecasting U.S. Macroeconomic and Financial Time Series with Noncausal and Causal AR Models: A Comparison

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  • Lanne, Markku
  • Nyberg, Henri
  • Saarinen, Erkka

Abstract

In this paper, we compare the forecasting performance of univariate noncausal and conventional causal autoregressive models for a comprehensive data set consisting of 170 monthly U.S. macroeconomic and financial time series. The noncausal models consistently outperform the causal models in terms of the mean square and mean absolute forecast errors. For a set of 18 quarterly time series, the improvement in forecast accuracy due to allowing for noncausality is found even greater.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30254.

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Date of creation: 05 Apr 2011
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Handle: RePEc:pra:mprapa:30254

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Keywords: Noncausal autoregression; forecast comparison; macroeconomic variables; financial variables;

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References

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  1. Lanne, Markku & Luoma, Arto & Luoto, Jani, 2009. "Bayesian Model Selection and Forecasting in Noncausal Autoregressive Models," MPRA Paper 23646, University Library of Munich, Germany.
  2. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2006. "A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 499-526.
  3. Breid, F. Jay & Davis, Richard A. & Lh, Keh-Shin & Rosenblatt, Murray, 1991. "Maximum likelihood estimation for noncausal autoregressive processes," Journal of Multivariate Analysis, Elsevier, vol. 36(2), pages 175-198, February.
  4. Lanne, Markku & Saikkonen, Pentti, 2010. "Noncausal autoregressions for economic time series," MPRA Paper 32943, University Library of Munich, Germany.
  5. Markku Lanne & Pentti Saikkonen, 2011. "GMM Estimation with Nonā€causal Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(5), pages 581-592, October.
  6. Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2010. "Optimal Forecasting of Noncausal Autoregressive Time Series," MPRA Paper 23648, University Library of Munich, Germany.
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Cited by:
  1. Henri Nyberg & Markku Lanne & Erkka Saarinen, 2012. "Does noncausality help in forecasting economic time series?," Economics Bulletin, AccessEcon, vol. 32(4), pages 2849-2859.
  2. Saikkonen, Pentti & Sandberg , Rickard, 2013. "Testing for a unit root in noncausal autoregressive models," Research Discussion Papers 26/2013, Bank of Finland.
  3. Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2010. "Optimal Forecasting of Noncausal Autoregressive Time Series," MPRA Paper 23648, University Library of Munich, Germany.

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