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Forecasting in Nonstationary Environments: What Works and What Doesn't in Reduced-Form and Structural Models

Listed author(s):
  • Raffaella Giacomini

    ()

    (Department of Economics, University College London, WC1H 0AX London, United Kingdom
    Centre for Microdata Methods and Practice (CeMMAP), WC1E 7AE London, United Kingdom)

  • Barbara Rossi

    ()

    (ICREA, Universitat Pompeu Fabra, Barcelona Graduate School of Economics, and Centre de Recerca Economia Internacional (CREI), 08005 Barcelona, Spain)

This review provides an overview of forecasting methods that can help researchers forecast in the presence of nonstationarities caused by instabilities. The emphasis of the review is both theoretical and applied, and we provide several examples of interest to economists. We show that modeling instabilities can help, but it depends on how they are modeled. We also demonstrate how to robustify a model against instabilities.

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Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 7 (2015)
Issue (Month): 1 (August)
Pages: 207-229

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Handle: RePEc:anr:reveco:v:7:y:2015:p:207-229
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