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The Stochastic Coefficients Approach to Econometric Modeling, Part III: Estimation, Stability Testing, and Prediction

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  • Swamy, P.A.V.B.
  • Conway, Roger K.
  • LeBlanc, Michael

Abstract

In this final article of our three-part series, we demonstrate why stochastic coefficients models are well suited to predict future variables We analyze the forecasting problem and consider various criteria of prediction If a forecaster must choose one from among several coherent predictors, then the choice should be the one with the best track record Decomposing the forecast error shows that stochastic coefficients models can cover more possible sources of prediction error and correct for them The empirical record shows that stichastic coefficients models can substantially reduce out-of-sample forecast errors more than fixed coefficients models Our assessment of coefficient stability tests is they are contradictory , misleading, and without empirical value

Suggested Citation

  • Swamy, P.A.V.B. & Conway, Roger K. & LeBlanc, Michael, 1988. "The Stochastic Coefficients Approach to Econometric Modeling, Part III: Estimation, Stability Testing, and Prediction," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 41(1), pages 1-17.
    • Handle: RePEc:ags:uersja:137668
    DOI: 10.22004/ag.econ.137668
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    References listed on IDEAS

    as
    1. Conway, Roger & Durst, Ron & Hrubovcak, James & LeBlanc, Michael, 1988. "Economic consequences of tax reform on agricultural investment," Technical Bulletins 312288, United States Department of Agriculture, Economic Research Service.
    2. Roger K. Conway & P. A. V. B. Swamy & Peter Von zur Muehlen, 1984. "The foundations of econometrics: are there any?," Special Studies Papers 182, Board of Governors of the Federal Reserve System (U.S.).
    3. Chow, Gregory C., 1984. "Random and changing coefficient models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 21, pages 1213-1245, Elsevier.
    4. Conway, Roger & Hrubovcak, James & LeBlanc, Michael, 1987. "A forecast evaluation of capital investment in agriculture," Technical Bulletins 312279, United States Department of Agriculture, Economic Research Service.
    5. Kashyap, A. K. & Swamy, P. A. V. B. & Mehta, J. S. & Porter, R. D., 1988. "Further results on estimating linear regression models with partial prior information," Economic Modelling, Elsevier, vol. 5(1), pages 49-57, January.
    6. Wolff, Christian C P, 1987. "Time-Varying Parameters and the Out-of-Sample Forecasting Performance of Structural Exchange Rate Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 87-97, January.
    7. Roger K. Conway & Charles B. Hallahan & Richard P. Stillman & Paul T. Prentice, 1990. "Forecasting livestock prices: Fixed and stochastic coefficients estimation comparisons," Agribusiness, John Wiley & Sons, Ltd., vol. 6(1), pages 15-32.
    8. Conway, Roger K. & Hallahan, Charles B. & Stillman, Richard P. & Prentice, Paul T., 1987. "Forecasting livestock prices: fixed and stochastic coefficients estimation," Technical Bulletins 312275, United States Department of Agriculture, Economic Research Service.
    9. Conway, Roger K. & Gill, Gurmukh S., 1987. "Is the Phillips Curve Stable? A Time-Varying Parameter Approach," Staff Reports 277925, United States Department of Agriculture, Economic Research Service.
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