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Forecast performance of nonlinear error-correction models with multiple regimes

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  • Zacharias Psaradakis

    (Birkbeck College, University of London, UK)

  • Fabio Spagnolo

    (CARISMA and Brunel University, UK)

Abstract

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.

Suggested Citation

  • Zacharias Psaradakis & Fabio Spagnolo, 2005. "Forecast performance of nonlinear error-correction models with multiple regimes," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 119-138.
    • Handle: RePEc:jof:jforec:v:24:y:2005:i:2:p:119-138
    DOI: 10.1002/for.946
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    Cited by:

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    2. Terasvirta, Timo, 2006. "Forecasting economic variables with nonlinear models," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 8, pages 413-457, Elsevier.
    3. Mathieu Gatumel & Florian Ielpo, 2011. "The Number of Regimes Across Asset Returns: Identification and Economic Value," Post-Print halshs-00658540, HAL.

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