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Forecasting with a Real-Time Data Set for Macroeconomists

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  • Tom Stark and Dean Croushore

Abstract

This paper discusses how forecasts may be affected by the use of real-time data rather than latest-available data. The key issue is this: In the literature on developing forecasting models, new models are put together based on the results they yield using the data set available to the model developer. But those aren't the data that were available to a forecaster in real time. How much difference does the vintage of the data make for such forecasts? We explore this issue with a variety of exercises designed to answer this question. In particular, we find that real-time data matters for some forecasting issues but not for others. It matters for choosing lag length in a univariate context. It may matter considerably for a short-horizon forecast, though is less important for longer-horizon forecasts. Preliminary evidence suggests that the span--or number--of forecast observations used to evaluate models may also be critical: we find that standard measures of forecast accuracy can be vintage-sensitive when constructed on the short spans (5 years of quarterly data) of data sometimes used by researchers for forecast evaluation. The differences between using real-time and latest-available data may depend on what's being used as the "actual" or realization, and we explore several alternatives that can be used. Perhaps of most importance, we show that measures of forecast error, such as root-mean-squared error and mean absolute error can be deceptively lower when using latest-available data rather than real-time data. Thus, developing a model using latest-available data is questionable; model development may be much better if it's based on real-time data.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 258.

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Date of creation: 01 Apr 2001
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Handle: RePEc:sce:scecf1:258

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Keywords: Forecasting; Real-time data; Macroeconomics;

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References

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  1. Stark, Tom & Croushore, Dean, 2002. "Forecasting with a real-time data set for macroeconomists," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 507-531, December.
  2. Howrey, E Philip, 1978. "The Use of Preliminary Data in Econometric Forecasting," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 193-200, May.
  3. Rosanne Cole, 1969. "Data Errors and Forecasting Accuracy," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 47-82 National Bureau of Economic Research, Inc.
  4. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  5. Swanson Norman, 1996. "Forecasting Using First-Available Versus Fully Revised Economic Time-Series Data," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 1(1), pages 1-20, April.
  6. Francis X. Diebold & Glenn D. Rudebusch, 1989. "Forecasting output with the composite leading index: an ex ante analysis," Finance and Economics Discussion Series 90, Board of Governors of the Federal Reserve System (U.S.).
  7. Trivellato, Ugo & Rettore, Enrico, 1986. "Preliminary Data Errors and Their Impact on the Forecast Error of Simultaneous-Equations Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(4), pages 445-53, October.
  8. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
  9. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
  10. Evan F. Koenig & Sheila Dolmas & Jeremy Piger, 2000. "The use and abuse of "real-time" data in economic forecasting," International Finance Discussion Papers 684, Board of Governors of the Federal Reserve System (U.S.).
  11. Dean Croushore & Tom Stark, 1999. "A real-time data set for marcoeconomists: does the data vintage matter?," Working Papers 99-21, Federal Reserve Bank of Philadelphia.
  12. Tom Stark, 1998. "A Bayesian vector error corrections model of the U.S. economy," Working Papers 98-12, Federal Reserve Bank of Philadelphia.
  13. John C. Robertson & Ellis W. Tallman, 1998. "Data vintages and measuring forecast model performance," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 4-20.
  14. Norman R. Swanson & Halbert White, 1997. "A Model Selection Approach To Real-Time Macroeconomic Forecasting Using Linear Models And Artificial Neural Networks," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 540-550, November.
  15. Evan F. Koenig & Sheila Dolmas, 1997. "Real-time GDP Growth Forecasts," Working Papers 9710, Federal Reserve Bank of Dallas.
  16. Granger, Clive W. J. & King, Maxwell L. & White, Halbert, 1995. "Comments on testing economic theories and the use of model selection criteria," Journal of Econometrics, Elsevier, vol. 67(1), pages 173-187, May.
  17. Stephen K. McNees, 1992. "How large are economic forecast errors?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 25-42.
  18. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
  19. Dean Croushore & Tom Stark, 1999. "Does data vintage matter for forecasting?," Working Papers 99-15, Federal Reserve Bank of Philadelphia.
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