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Macroeconomic forecasting during the Great Recession: The return of non-linearity?

Author

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  • Ferrara, L.
  • Marcellino, M.
  • Mogliani, M.

Abstract

The debate on the forecasting ability in economics of non-linear models has a long history, and the Great Recession provides us with an opportunity for a re-assessment of the forecasting performance of several classes of non-linear models, widely used in applied macroeconomic research. In this paper, we carry out an extensive analysis over a large quarterly database consisting of major real, nominal and financial variables for a large panel of OECD member countries. It turns out that, on average, non-linear models do not outperform standard linear specifications, even during the Great Recession period. In spite of this result, non-linear models enable to improve forecast accuracy in almost 40% of cases. Especially some countries and/or variables appear to be more adapted to non-linear forecasting.

Suggested Citation

  • Ferrara, L. & Marcellino, M. & Mogliani, M., 2012. "Macroeconomic forecasting during the Great Recession: The return of non-linearity?," Working papers 383, Banque de France.
  • Handle: RePEc:bfr:banfra:383
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    More about this item

    Keywords

    Forecasting; Non-linear models; Great Recession.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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