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Backcasting world trade growth using data reduction methods

Author

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  • Amélie Charles

    (USN AM - Université Sorbonne Nouvelle - Paris 3 - UFR Arts et médias - Université Sorbonne Nouvelle - Paris 3, Audencia Business School)

  • Olivier Darné

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université)

Abstract

This paper compares backcasting performance of models based on variable selection to dynamic factor model for backcasting the world trade growth rate with two months ahead. The variable selection models are specified by applying penalised regressions and an automatic general-to-specific procedure, using a large data set. A recursive forecast study is carried out to assess the backcasting performance by distinguishing crisis and non-crisis periods. The results show that, some selection-based models exhibit a good backcasting performance during both periods. The more accurate backcasts seem to be SCAD, adaptive Elastic-Net and adaptive SCAD during the global financial crisis (GFC) and COVID-19 crisis, whereas it seems rather Lasso, Elastic-Net, adaptive Lasso and DFM during the noncrisis period. Amongst the predictors for backcasting world trade growth, it appears that the index of global economic conditions proposed by Baumeister et al. (The Review of Economics and Statistics, 2020), the PMI indicator on new export orders in manufacturing sector and the MSCI world index are relevant.

Suggested Citation

  • Amélie Charles & Olivier Darné, 2022. "Backcasting world trade growth using data reduction methods," Post-Print hal-04027843, HAL.
    • Handle: RePEc:hal:journl:hal-04027843
    DOI: 10.1111/twec.13274
    Note: View the original document on HAL open archive server: https://hal.science/hal-04027843
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    References listed on IDEAS

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    2. Andrii Babii & Eric Ghysels & Jonas Striaukas, 2022. "Machine Learning Time Series Regressions With an Application to Nowcasting," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 40(3), pages 1094-1106, June.
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    5. Jennifer L. Castle, 2005. "Evaluating PcGets and RETINA as Automatic Model Selection Algorithms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 837-880, December.
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    Cited by:

    1. Chinn Menzie & Meunier Baptiste & Stumpner Sebastian, 2023. "Nowcasting world trade in real time with machine learning [Estimation du commerce mondial en temps réel grâce à l’apprentissage automatique]," Bulletin de la Banque de France, Banque de France, issue 248.

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    More about this item

    Keywords

    backcasting; general- to-specific approach; shrinkage methods; variable selection; world trade growth;
    All these keywords.

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