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The Contribution of Structural Break Models to Forecasting Macroeconomic Series

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Author Info

  • Luc Bauwens

    (Université catholique de Louvain, CORE)

  • Gary Koop

    (University of Strathclyde)

  • Dimitris Korobilis

    (Université catholique de Louvain, CORE)

  • Jeroen V.K. Rombouts

    (Institute of Applied Economics at HEC Montréal, CIRANO, CIRPEE; Université catholique de Louvain, CORE)

Abstract

This paper compares the forecasting performance of different models which have been proposed for forecasting in the presence of structural breaks. These models differ in their treatment of the break process, the model which applies in each regime and the out-of-sample probability of a break occurring. In an extensive empirical evaluation involving many important macroeconomic time series, we demonstrate the presence of structural breaks and their importance for forecasting in the vast majority of cases. We find no single forecasting model consistently works best in the presence of structural breaks. In many cases, the formal modeling of the break process is important in achieving good forecast performance. However, there are also many cases where simple, rolling window based forecasts perform well.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 38_11.

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Date of creation: Jul 2011
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Handle: RePEc:rim:rimwps:38_11

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Related research

Keywords: Forecasting; change-points; Markov switching; Bayesian inference;

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Cited by:
  1. Czinkota, Thomas, 2012. "Das Halteproblem bei Strukturbrüchen in Finanzmarktzeitreihen
    [The Halting Problem applied to Structural Breaks in Financial Time Series]
    ," MPRA Paper 37072, University Library of Munich, Germany.
  2. Stephen McKnight & Alexander Mihailov & Kerry Patterson & Fabio Rumler, 2014. "The Predictive Performance of Fundamental Inflation Concepts: An Application to the Euro Area and the United States," Economics & Management Discussion Papers em-dp2014-03, Henley Business School, Reading University.

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