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Forecasting economic variables with nonlinear models

Listed author(s):
  • Teräsvirta, Timo

    ()

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

This article is concerned with forecasting from nonlinear conditional mean models. First, a number of often applied nonlinear conditional mean models are introduced and their main properties discussed. The next section is devoted to techniques of building nonlinear models. Ways of computing multi-step ahead forecasts from nonlinear models are surveyed. Tests of forecast accuracy in the case where the models generating the forecasts are nested are discussed. There is a numerical example, showing that even when a stationary nonlinear process generates the observations, future obervations may in some situations be better forecast by a linear model with a unit root. Finally, some empirical studies that compare forecasts from linear and nonlinear models 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 598.

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Length: 55 pages
Date of creation: 31 May 2005
Date of revision: 29 Dec 2005
Publication status: Published in Handbook of Economic Forecasting, Elliott, Graham, Granger, Clive W.J., Timmermann, Allan (eds.), 2006, pages 413-457, Elsevier.
Handle: RePEc:hhs:hastef:0598
Note: This paper has been prepared for Graham Elliott, Clive W.J. Granger and Allan Timmermann (eds.). Handbook of Economic Forecasting. Amsterdam: Elsevier. This version replaces the previous faulty one (references missing).
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