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Linear models, smooth transition autoregressions, and neural networks for forecasting macroeconomic time series: A re-examination

  • Teräsvirta, Timo

    ()

    (Dept. of Economic Statistics, Stockholm School of Economics)

  • van Dijk, Dick

    ()

    (Econometric Institute, Erasmus University Rotterdam)

  • Medeiros, Marcelo

    ()

    (Department of Economics, Pontifical Catholic University of Rio de Janeiro)

In this paper we examine the forecast accuracy of linear autoregressive, smooth transition autoregressive (STAR), and neural network (NN) time series models for 47 monthly macroeconomic variables of the G7 economies. Unlike previous studies that typically consider multiple but fixed model specifications, we use a single but dynamic specification for each model class. The point forecast results indicate that the STAR model generally outperforms linear autoregressive models. It also improves upon several fixed STAR models, demonstrating that careful specification of nonlinear time series models is of crucial importance. The results for neural network models are mixed in the sense that at long forecast horizons, an NN model obtained using Bayesian regularization produces more accurate forecasts than a corresponding model specified using the specific-to-general approach. Reasons for this outcome are discussed.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 561.

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Length: 36 pages
Date of creation: 14 Jul 2004
Date of revision: 04 Nov 2004
Publication status: Published in International Journal of Forecasting, 2005, pages 755-774.
Handle: RePEc:hhs:hastef:0561
Note: The paper will appear with Discussion by Professor Alfonso Novales and a reply by the authors.
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
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