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The Performance Of Setar Models : A Regime Conditional Evaluation Of Point, Interval And Density Forecasts

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  • Boero, Gianna

    (University of Cagliari, CRENoS and University of Warwick)

  • Marrocu, Emanuela

    (University of Cagliari and CRENoS)

Abstract

The aim of this paper is to analyse the out-of-sample performance of SETAR models relative to a linear AR and a GARCH model using daily data for the Euro effective exchange rate. The evaluation is conducted on point, interval and density forecasts, unconditionally, over the whole forecast period, and conditional on specific regimes. The results show that overall the GARCH model is better able to capture the distributional features of the series and to predict higher-order moments than the SETAR models. However, from the results there is also a clear indication that the performance of the SETAR models improves significantly conditional on being on specific regimes.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp663.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 663.

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Length: 35 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:wrk:warwec:663

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Keywords: SETAR models ; forecasting accuracy ; point forecasts ; MSFEs ; interval forecasts ; density forecasts ; Euro effective exchange rate;

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References

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  1. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  2. Diebold, Francis X. & Nason, James A., 1990. "Nonparametric exchange rate prediction?," Journal of International Economics, Elsevier, Elsevier, vol. 28(3-4), pages 315-332, May.
  3. Clements, M.P. & Smith J., 1998. "Evaluating The Forecast of Densities of Linear and Non-Linear Models: Applications to Output Growth and Unemployment," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 509, University of Warwick, Department of Economics.
  4. Anthony Tay & Kenneth F. Wallis, 2000. "Density Forecasting: A Survey," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0370, Econometric Society.
  5. Anderson, Gordon, 1994. "Simple tests of distributional form," Journal of Econometrics, Elsevier, Elsevier, vol. 62(2), pages 265-276, June.
  6. G. Boero & J. Smith & KF. Wallis, 2002. "The properties of some goodness-of-fit tests," Working Paper CRENoS 200209, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  7. Clements, Michael P. & Smith, Jeremy, 2001. "Evaluating forecasts from SETAR models of exchange rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 20(1), pages 133-148, February.
  8. Wallis, Kenneth F., 2003. "Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts," International Journal of Forecasting, Elsevier, Elsevier, vol. 19(2), pages 165-175.
  9. Krager, Horst & Kugler, Peter, 1993. "Non-linearities in foreign exchange markets: a different perspective," Journal of International Money and Finance, Elsevier, Elsevier, vol. 12(2), pages 195-208, April.
  10. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(3), pages 253-63, July.
  11. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(2), pages 281-291, June.
  12. Clements, Michael P & Smith, Jeremy, 1996. "A Monte Carlo Study of the Forecasting Performance of Empirical Setar Models," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 464, University of Warwick, Department of Economics.
  13. Clements, Michael P. & Smith, Jeremy, 1997. "The performance of alternative forecasting methods for SETAR models," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(4), pages 463-475, December.
  14. Granger, Clive W J, 1993. "Strategies for Modelling Nonlinear Time-Series Relationships," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 69(206), pages 233-38, September.
  15. Boero, Gianna & Marrocu, Emanuela, 2002. "The Performance of Non-linear Exchange Rate Models: A Forecasting Comparison," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(7), pages 513-42, November.
  16. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  17. G. Boero & E. Marrocu, 2001. "Evaluating non-linear models on point and interval forecasts: an application with exchange rate returns," Working Paper CRENoS 200110, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
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Citations

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Cited by:
  1. E Pavlidis & I Paya & D Peel, 2009. "Forecasting the Real Exchange Rate using a Long Span of Data. A Rematch: Linear vs Nonlinear," Working Papers 601190, Lancaster University Management School, Economics Department.
  2. De Gooijer, Jan G. & Hyndman, Rob J., 2006. "25 years of time series forecasting," International Journal of Forecasting, Elsevier, Elsevier, vol. 22(3), pages 443-473.
  3. Wagner Piazza Gaglianone & Jaqueline Terra Moura Marins, 2014. "Risk Assessment of the Brazilian FX Rate," Working Papers Series, Central Bank of Brazil, Research Department 344, Central Bank of Brazil, Research Department.
  4. Jan G. de Gooijer & Rob J. Hyndman, 2005. "25 Years of IIF Time Series Forecasting: A Selective Review," Tinbergen Institute Discussion Papers 05-068/4, Tinbergen Institute.
  5. Heather M. Anderson & Chin Nam Low, 2004. "Random Walk Smooth Transition Autoregressive Models," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 22/04, Monash University, Department of Econometrics and Business Statistics, revised May 2005.
  6. Jian Wang & Jason J. Wu, 2012. "The Taylor Rule and Forecast Intervals for Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 44(1), pages 103-144, 02.
  7. John W. Galbraith & Greg Tkacz, 2007. "How Far Can Forecasting Models Forecast? Forecast Content Horizons for Some Important Macroeconomic Variables," Working Papers, Bank of Canada 07-1, Bank of Canada.
  8. Clements, Michael P. & Franses, Philip Hans & Swanson, Norman R., 2004. "Forecasting economic and financial time-series with non-linear models," International Journal of Forecasting, Elsevier, Elsevier, vol. 20(2), pages 169-183.
  9. Gianna Boero & Emanuela Marrocu, 2005. "Evaluating non-linear models on point and interval forecasts: an application with exchange rates," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 58(232), pages 91-120.
  10. G. Marletto, 2006. "La politica dei trasporti come politica per l’innovazione: spunti da un approccio evolutivo," Working Paper CRENoS 200605, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  11. repec:lan:wpaper:2592 is not listed on IDEAS
  12. Adrian Cantemir Calin & Tiberiu Diaconescu & Oana – Cristina Popovici, 2014. "Nonlinear Models for Economic Forecasting Applications: An Evolutionary Discussion," Computational Methods in Social Sciences (CMSS), "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 2(1), pages 42-47, June.
  13. repec:lan:wpaper:2369 is not listed on IDEAS
  14. O. Carboni & G. Medda, 2007. "Government Size and the Composition of Public Spending in a Neoclassical Growth Model," Working Paper CRENoS 200701, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  15. Gloria González-Rivera & Tae-Hwy Lee, 2007. "Nonlinear Time Series in Financial Forecasting," Working Papers 200803, University of California at Riverside, Department of Economics, revised Feb 2008.
  16. repec:ntu:ntugeo:vol2-iss1-14-042 is not listed on IDEAS
  17. repec:lan:wpaper:2450 is not listed on IDEAS

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