Real-time Forecasting of Inflation and Output Growth in the Presence of Data Revisions
AbstractWe show how to improve the accuracy of real-time forecasts from models that include au-toregressive terms by estimating the models on ‘lightly-revised’data instead of using data from the latest-available vintage. Forecast accuracy is improved by reorganizing the data vintages employed in the estimation of the model in such a way that the vintages used in estimation are of a similar maturity to the data in the forecast loss function. The size of the expected reductions in mean squared error depend on the characteristics of the data revision process. Empirically, we …nd RMSFE gains of 2-4% when forecasting output growth and in‡ation with AR models, and gains of the order of 8% with ADL models.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 953.
Date of creation: 2010
Date of revision:
real-time data ; news and noise revisions ; optimal forecasts ; multi-vintage models. JEL Classification: C53;
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- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-03 (All new papers)
- NEP-CBA-2011-01-03 (Central Banking)
- NEP-ECM-2011-01-03 (Econometrics)
- NEP-FOR-2011-01-03 (Forecasting)
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- Drechsel, Katja & Scheufele, Rolf, 2012. "The performance of short-term forecasts of the German economy before and during the 2008/2009 recession," International Journal of Forecasting, Elsevier, vol. 28(2), pages 428-445.
- Todd Clark & Michael W. McCracken, 2011.
"Advances in forecast evaluation,"
1120, Federal Reserve Bank of Cleveland.
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