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Error-correction versus Differencing in Macroeconomic Forecasting

Author

Listed:
  • Eitrheim, O.
  • Husebo, T.A.
  • Nymoen, R.

Abstract

Recent work by Clements and Hendry have shown why forecasting systems that are in terms of differences, dVARs, can be more accurate than econometric models that include levels variables, ECMs. For example, dVAR forecasts are insulated from parameter non-constancies in the long run mean of the cointegration relationships. In this paper, the practical relevance of these issues are investigated for RIMINI, the quarterly model of the Central Bank of Norway, which we take as an example of an ECM forecasting model.

Suggested Citation

  • Eitrheim, O. & Husebo, T.A. & Nymoen, R., 1998. "Error-correction versus Differencing in Macroeconomic Forecasting," Memorandum 01/1998, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:1998_001
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/1998/Memo-01-1998.pdf
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    References listed on IDEAS

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    1. Dewatripont, Mathias, 1987. "The role of indifference in sequential models of spatial competition : An example," Economics Letters, Elsevier, vol. 23(4), pages 323-328.
    2. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
    3. Spagat, Michael, 1992. "Validated equilibrium and sequential spatial competition games," Mathematical Social Sciences, Elsevier, vol. 24(1), pages 49-57, August.
    4. Nilssen, T. & Sorgard, L., 1996. "Strategic Location with Asymmetric Transportation Costs," Memorandum 35/1996, Oslo University, Department of Economics.
    5. Cancian, Maria & Bills, Angela & Bergstrom, Theodore, 1995. "Hotelling Location Problems with Directional Constraints: An Application to Television News Scheduling," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 121-124, March.
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    More about this item

    Keywords

    FORECASTS ; MACROECONOMICS;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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