Adaptive forecasting in the presence of recent and ongoing structural change
We consider time series forecasting in the presence of ongoing structural change where both the time series dependence and the nature of the structural change are unknown. Methods that downweight older data, such as rolling regressions, forecast averaging over different windows and exponentially weighted moving averages, known to be robust to historical structural change, are found also to be useful in the presence of ongoing structural change in the forecast period. A crucial issue is how to select the degree of downweighting, usually defined by an arbitrary tuning parameter. We make this choice data-dependent by minimising the forecast mean square error, and provide a detailed theoretical analysis of our proposal. Monte Carlo results illustrate the methods. We examine their performance on 97 US macro series. Forecasts using data-based tuning of the data discount rate are shown to perform well.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Orbe, Susan & Ferreira, Eva & Rodriguez-Poo, Juan, 2005.
"Nonparametric estimation of time varying parameters under shape restrictions,"
Journal of Econometrics,
Elsevier, vol. 126(1), pages 53-77, May.
- Rodríguez Poo, Juan M. & Ferreira García, María Eva & Orbe Mandaluniz, Susan, 2001. "Nonparametric estimation of time varying parameters under shape restrictions," BILTOKI 2001-02, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
- repec:cup:cbooks:9780521632423 is not listed on IDEAS
- Jushan Bai & Pierre Perron, 1998.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- James H. Stock & Mark W. Watson, 1994.
"Evidence on structural instability in macroeconomic times series relations,"
Working Paper Series, Macroeconomic Issues
94-13, Federal Reserve Bank of Chicago.
- Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
- James H. Stock & Mark W. Watson, 1994. "Evidence on Structural Instability in Macroeconomic Time Series Relations," NBER Technical Working Papers 0164, National Bureau of Economic Research, Inc.
- Eklund, Jana & Kapetanios, George & Price, Simon, 2010.
"Forecasting in the presence of recent structural change,"
Bank of England working papers
406, Bank of England.
- Jana Eklund & George Kapetanios & Simon Price, 2011. "Forecasting in the presence of recent structural change," CAMA Working Papers 2011-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Eklund, J. & Kapetanios, G. & Price, S., 2011. "Forecasting in the presence of recent structural change," Working Papers 11/05, Department of Economics, City University London.
- Kapetanios, George, 2007. "Estimating deterministically time-varying variances in regression models," Economics Letters, Elsevier, vol. 97(2), pages 97-104, November.
- Elliott, Graham & Timmermann, Allan G, 2007.
CEPR Discussion Papers
6158, C.E.P.R. Discussion Papers.
- Kapetanios, George & Labhard, Vincent & Price, Simon, 2006.
"Forecasting using predictive likelihood model averaging,"
Elsevier, vol. 91(3), pages 373-379, June.
- George Kapetanios & Vincent Labhard & Simon Price, 2006. "Forecasting Using Predictive Likelihood Model Averaging," Working Papers 567, Queen Mary University of London, School of Economics and Finance.
- Andrews, Donald W K, 1993.
"Tests for Parameter Instability and Structural Change with Unknown Change Point,"
Econometric Society, vol. 61(4), pages 821-56, July.
- Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
- Pesaran, M. Hashem & Timmermann, Allan, 2007. "Selection of estimation window in the presence of breaks," Journal of Econometrics, Elsevier, vol. 137(1), pages 134-161, March.
- Clements, Michael P. & Hendry, David F., 2006. "Forecasting with Breaks," Handbook of Economic Forecasting, Elsevier.
- Hendry, David F., 2000. "On detectable and non-detectable structural change," Structural Change and Economic Dynamics, Elsevier, vol. 11(1-2), pages 45-65, July.
- Clements, Michael P & Hendry, David F, 1996. "Intercept Corrections and Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 475-94, Sept.-Oct.
- Jennifer Castle & David Hendry & Nicholas W.P. Fawcett, 2011. "Forecasting breaks and forecasting during breaks," Economics Series Working Papers 535, University of Oxford, Department of Economics.
- repec:cup:cbooks:9780521634809 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:177:y:2013:i:2:p:153-170. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.