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Forecast performance of nonlinear error-correction models with multiple regimes

  • Zacharias Psaradakis

    (Birkbeck College, University of London, UK)

  • Fabio Spagnolo

    (CARISMA and Brunel University, UK)

In this paper we investigate the forecast performance of nonlinear error-correction models with regime switching. In particular, we focus on threshold and Markov switching error-correction models, where adjustment towards long-run equilibrium is nonlinear and discontinuous. Our simulation study reveals that the gains from using a correctly specified nonlinear model can be considerable, especially if disequilibrium adjustment is strong and|or the magnitude of parameter changes is relatively large. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.946
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 24 (2005)
Issue (Month): 2 ()
Pages: 119-138

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Handle: RePEc:jof:jforec:v:24:y:2005:i:2:p:119-138
DOI: 10.1002/for.946
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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