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A comparison of Forecasting Procedures for Macroeconomic Series: The Contribution of Structural Break Models

  • Luc Bauwens

    ()

    (Université catholique de Louvain)

  • Gary Koop

    ()

    (Department of Economics, University of Strathclyde)

  • Dimitris Korobilis

    ()

    (Universite Catholique de Louvain)

  • Jeroen Rombouts

    ()

    (HEC Montréal (École des Hautes Études Commerciales) (Business School) and Center for Operations Research and Econometrics (CORE) ECORE)

This paper compares the forecasting performance of different models which have been proposed for forecasting in the presence of structural breaks. These models differ in their treatment of the break process, the parameters defining the model which applies in each regime and the out-of-sample probability of a break occurring. In an extensive empirical evaluation involving many important macroeconomic time series, we demonstrate the presence of structural breaks and their importance for forecasting in the vast majority of cases. However, we find no single forecasting model consistently works best in the presence of structural breaks. In many cases, the formal modeling of the break process is important in achieving good forecast performance. However, there are also many cases where simple, rolling OLS forecasts perform well.

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File URL: http://www.strath.ac.uk/media/departments/economics/researchdiscussionpapers/2011/11-13_Final.pdf
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Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1113.

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Length: 47 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:str:wpaper:1113
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  1. D'Agostino, Antonello & Gambetti, Luca & Giannone, Domenico & Giannone, Domenico, 2009. "Macroeconomic Forecasting and Structural Change," Research Technical Papers 8/RT/09, Central Bank of Ireland.
  2. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
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