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Forecasting the World Economy in the Short Term

  • Audrone Jakaitiene
  • Stephane Dees

Forecasting the world economy is a difficult task given the complex interrelationships within and across countries. This paper proposes a number of approaches to forecast short-term changes in selected world economic variables and aims, first, at ranking various forecasting methods in terms of forecast accuracy and, second, at checking whether methods forecasting di- rectly aggregate variables (direct approaches)out-perform methods based on the aggregation of country- specific forecasts (bottom-up approaches). Overall, all methods perform better than a simple benchmark for short horizons (up to three months ahead). Among the forecasting approaches used, factor models appear to perform the best. Moreover, direct approaches out-perform bottom-up ones for real variables, but not for prices. Finally, when country-specific forecasts are adjusted to match direct forecasts at the aggregate levels (top-down approaches), the forecast accuracy is neither improved nor deteriorated (i.e. top-down and bottom-up approaches are broadly equivalent in terms of country-specific forecast accuracy). JEL Classification: C53, C32, E37, F17

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Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 35 (2012)
Issue (Month): 3 (03)
Pages: 331-350

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Handle: RePEc:bla:worlde:v:35:y:2012:i:3:p:331-350
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