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Forecasting Canadian GDP: Region-Specific versus Countrywide Information

  • Frédérick Demers
  • David Dupuis

The authors investigate whether the aggregation of region-specific forecasts improves upon the direct forecasting of Canadian GDP growth. They follow Marcellino, Stock, and Watson (2003) and use disaggregate information to predict aggregate GDP growth. An array of multivariate forecasting models are considered for five Canadian regions, and single-equation models are considered for direct forecasting of Canadian GDP. The authors focus on forecasts at 1-, 2-, 4-, and 8-quarter horizons, which best represent the monetary policy transmission framework of long and variable lags. Region-specific forecasts are aggregated to the country level and tested against aggregate country-level forecasts. The empirical results show that Canadian GDP growth forecasts can be improved by indirectly forecasting the GDP growth of the Canadian economic regions using a multivariate approach, namely a vector autoregression and moving average with exogenous regressors (VARMAX) model.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp05-31.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 05-31.

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Length: 40 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:bca:bocawp:05-31
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  1. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2003. "Macroeconomic forecasting in the Euro area: Country specific versus area-wide information," European Economic Review, Elsevier, vol. 47(1), pages 1-18, February.
  2. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  3. Giacomini, Raffaella & Granger, Clive W. J., 2004. "Aggregation of space-time processes," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 7-26.
  4. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
  5. Marc Hallin & Zudi Lu & Lanh T. Tran, 2004. "Local linear spatial regression," ULB Institutional Repository 2013/2131, ULB -- Universite Libre de Bruxelles.
  6. Clive W. J. Granger, 1988. "Aggregation of time series variables-a survey," Discussion Paper / Institute for Empirical Macroeconomics 1, Federal Reserve Bank of Minneapolis.
  7. Michel Beine & Serge Coulombe, 2003. "Regional Perspectives on Dollarization in Canada," Journal of Regional Science, Wiley Blackwell, vol. 43(3), pages 541-570.
  8. Alain DeSerres & Rene Lalonde, 1995. "Symetrie des chocs touchant les regions canadiennes et choix d'un regime de change," Macroeconomics 9502001, EconWPA.
  9. Tobias, Justin & Zellner, Arnold, 2000. "A Note on Aggregation, Disaggregation and Forecasting Performance," Staff General Research Papers 12024, Iowa State University, Department of Economics.
  10. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  11. Barry J. Eichengreen & Tamim Bayoumi, 1993. "Monetary and Exchange Rate Arrangements for Nafta," IMF Working Papers 93/20, International Monetary Fund.
  12. Frédérick Demers & Annie De Champlain, 2005. "Forecasting Core Inflation in Canada: Should We Forecast the Aggregate or the Components?," Working Papers 05-44, Bank of Canada.
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