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Forecasting European GDP Using Self-Exciting Threshold Autoregressive Models. A Warning

  • Crespo-Cuaresma, Jesus

    (Institute for Advanced Studies, Vienna)

A two-regime self-exciting threshold autoregressive process is estimated for quarterly aggregate GDP of the fifteen countries that compose the European Union, and the forecasts from this nonlinear model are compared, by means of a Monte Carlo simulation, with those from a simple autoregressive model, whose lag length is chosen to minimize Akaike's AIC criterion. The results are very negative for the SETAR model when the Monte Carlo procedure is used to generate multi-step forecasts. When the "naive" procedure of generating forecasts is used, the results are surprisingly better for the SETAR model in long-term predictions. Due to the characteristics of the residuals, a bootstrapping method of forecasting was also used, yielding even poorer results for the nonlinear model.

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Paper provided by Institute for Advanced Studies in its series Economics Series with number 79.

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Length: 15 pages
Date of creation: Mar 2000
Date of revision:
Handle: RePEc:ihs:ihsesp:79
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  1. Francis X. Diebold & James M. Nason, 1989. "Nonparametric exchange rate prediction?," Finance and Economics Discussion Series 81, Board of Governors of the Federal Reserve System (U.S.).
  2. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  3. Michael Pippenger & Gregory Goering, 1998. "Exchange Rate Forecasting: Results from a Threshold Autoregressive Model," Open Economies Review, Springer, vol. 9(2), pages 157-170, April.
  4. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423.
  5. Clements, Michael P. & Hendry, David F., 1998. "Forecasting economic processes," International Journal of Forecasting, Elsevier, vol. 14(1), pages 111-131, March.
  6. Philip Rothman, . "Forecasting Asymmetric Unemployment Rates," Working Papers 9618, East Carolina University, Department of Economics.
  7. Clements, Michael P. & Smith, Jeremy, 1997. "The performance of alternative forecasting methods for SETAR models," International Journal of Forecasting, Elsevier, vol. 13(4), pages 463-475, December.
  8. De Gooijer, Jan G. & Kumar, Kuldeep, 1992. "Some recent developments in non-linear time series modelling, testing, and forecasting," International Journal of Forecasting, Elsevier, vol. 8(2), pages 135-156, October.
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