IDEAS home Printed from https://ideas.repec.org/p/tam/wpaper/1692.html
   My bibliography  Save this paper

Selection of an Estimation Window in the Presence of Data Revisions and Recent Structural Breaks

Author

Listed:
  • Jari Hännikäinen

    (School of Management, University of Tampere)

Abstract

In this paper, we analyze the forecasting performance of a set of widely used window selection methods in the presence of data revisions and recent structural breaks. Our Monte Carlo and empirical results for U.S. real GDP and inflation show that the expanding window estimator often yields the most accurate forecasts after a recent break. It performs well regardless of whether the revisions are news or noise, or whether we forecast first-release or final values. We find that the differences in the forecasting accuracy are large in practice, especially when we forecast inflation after the break of the early 1980s.

Suggested Citation

  • Jari Hännikäinen, 2016. "Selection of an Estimation Window in the Presence of Data Revisions and Recent Structural Breaks," Working Papers 1692, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:1692
    as

    Download full text from publisher

    File URL: http://urn.fi/URN:ISBN:978-952-03-0308-2
    File Function: Third version, 2016
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pesaran, M. Hashem & Timmermann, Allan, 2005. "Small sample properties of forecasts from autoregressive models under structural breaks," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 183-217.
    2. Evan F. Koenig & Sheila Dolmas & Jeremy Piger, 2003. "The Use and Abuse of Real-Time Data in Economic Forecasting," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 618-628, August.
    3. Clements, Michael P. & Hendry, David F., 2006. "Forecasting with Breaks," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 12, pages 605-657, Elsevier.
    4. Rossi, Barbara, 2013. "Advances in Forecasting under Instability," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1203-1324, Elsevier.
    5. Raffaella Giacomini & Halbert White, 2006. "Tests of Conditional Predictive Ability," Econometrica, Econometric Society, vol. 74(6), pages 1545-1578, November.
    6. S. Borağan Aruoba, 2008. "Data Revisions Are Not Well Behaved," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 319-340, March.
    7. Pesaran, M. Hashem & Pick, Andreas & Pranovich, Mikhail, 2013. "Optimal forecasts in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 177(2), pages 134-152.
    8. Andrews, Donald W. K. & Lee, Inpyo & Ploberger, Werner, 1996. "Optimal changepoint tests for normal linear regression," Journal of Econometrics, Elsevier, vol. 70(1), pages 9-38, January.
    9. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    10. Jana Eklund & George Kapetanios & Simon Price, 2013. "Robust Forecast Methods and Monitoring during Structural Change," Manchester School, University of Manchester, vol. 81, pages 3-27, October.
    11. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    12. Hännikäinen Jari, 2017. "Selection of an Estimation Window in the Presence of Data Revisions and Recent Structural Breaks," Journal of Econometric Methods, De Gruyter, vol. 6(1), pages 1-22, January.
    13. Margaret M. McConnell & Gabriel Perez-Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    14. Timmermann, Allan, 2006. "Forecast Combinations," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 4, pages 135-196, Elsevier.
    15. Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, October.
    16. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    17. James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
    18. Capistrán, Carlos & Timmermann, Allan, 2009. "Forecast Combination With Entry and Exit of Experts," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 428-440.
    19. Giraitis, Liudas & Kapetanios, George & Price, Simon, 2013. "Adaptive forecasting in the presence of recent and ongoing structural change," Journal of Econometrics, Elsevier, vol. 177(2), pages 153-170.
    20. Pesaran, M. Hashem & Pick, Andreas, 2011. "Forecast Combination Across Estimation Windows," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(2), pages 307-318.
    21. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December.
    22. Michael P. Clements & Ana Beatriz Galvão, 2013. "Real‐Time Forecasting Of Inflation And Output Growth With Autoregressive Models In The Presence Of Data Revisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(3), pages 458-477, April.
    23. N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc.
    24. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
    25. Jacobs, Jan P.A.M. & van Norden, Simon, 2011. "Modeling data revisions: Measurement error and dynamics of "true" values," Journal of Econometrics, Elsevier, vol. 161(2), pages 101-109, April.
    26. Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
    27. G. Elliott & C. Granger & A. Timmermann (ed.), 2013. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 2, number 2.
    28. Pesaran, M. Hashem & Timmermann, Allan, 2007. "Selection of estimation window in the presence of breaks," Journal of Econometrics, Elsevier, vol. 137(1), pages 134-161, March.
    29. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    30. G. Elliott & C. Granger & A. Timmermann (ed.), 2006. "Handbook of Economic Forecasting," Handbook of Economic Forecasting, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hännikäinen Jari, 2017. "Selection of an Estimation Window in the Presence of Data Revisions and Recent Structural Breaks," Journal of Econometric Methods, De Gruyter, vol. 6(1), pages 1-22, January.
    2. Yi-Hao Lai & Yi-Chiuan Wang & Yu-Ching Chang, 2024. "Forecasting Trading-Session Return Volatility in Taiwan Futures Market: A Periodic Regime Switching with Jump Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(2), pages 285-305, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jari Hännikäinen, 2014. "Multi-step forecasting in the presence of breaks," Working Papers 1494, Tampere University, Faculty of Management and Business, Economics.
    2. Rossi, Barbara, 2013. "Advances in Forecasting under Instability," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 1203-1324, Elsevier.
    3. Petropoulos, Fotios & Apiletti, Daniele & Assimakopoulos, Vassilios & Babai, Mohamed Zied & Barrow, Devon K. & Ben Taieb, Souhaib & Bergmeir, Christoph & Bessa, Ricardo J. & Bijak, Jakub & Boylan, Joh, 2022. "Forecasting: theory and practice," International Journal of Forecasting, Elsevier, vol. 38(3), pages 705-871.
      • Fotios Petropoulos & Daniele Apiletti & Vassilios Assimakopoulos & Mohamed Zied Babai & Devon K. Barrow & Souhaib Ben Taieb & Christoph Bergmeir & Ricardo J. Bessa & Jakub Bijak & John E. Boylan & Jet, 2020. "Forecasting: theory and practice," Papers 2012.03854, arXiv.org, revised Jan 2022.
    4. Barbara Rossi, 2019. "Forecasting in the presence of instabilities: How do we know whether models predict well and how to improve them," Economics Working Papers 1711, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2021.
    5. M. Mogliani & T. Ferrière, 2016. "Rationality of announcements, business cycle asymmetry, and predictability of revisions. The case of French GDP," Working papers 600, Banque de France.
    6. Pesaran, M. Hashem & Pick, Andreas & Pranovich, Mikhail, 2013. "Optimal forecasts in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 177(2), pages 134-152.
    7. David Hendry & Michael P. Clements, 2010. "Forecasting from Mis-specified Models in the Presence of Unanticipated Location Shifts," Economics Series Working Papers 484, University of Oxford, Department of Economics.
    8. Tae‐Hwy Lee & Shahnaz Parsaeian & Aman Ullah, 2022. "Forecasting Under Structural Breaks Using Improved Weighted Estimation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(6), pages 1485-1501, December.
    9. Inoue, Atsushi & Jin, Lu & Rossi, Barbara, 2017. "Rolling window selection for out-of-sample forecasting with time-varying parameters," Journal of Econometrics, Elsevier, vol. 196(1), pages 55-67.
    10. Tae‐Hwy Lee & Shahnaz Parsaeian & Aman Ullah, 2022. "Optimal forecast under structural breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(5), pages 965-987, August.
    11. Koo, Bonsoo & Seo, Myung Hwan, 2015. "Structural-break models under mis-specification: Implications for forecasting," Journal of Econometrics, Elsevier, vol. 188(1), pages 166-181.
    12. Jana Eklund & George Kapetanios & Simon Price, 2013. "Robust Forecast Methods and Monitoring during Structural Change," Manchester School, University of Manchester, vol. 81, pages 3-27, October.
    13. Davide De Gaetano, 2016. "Forecast Combinations For Realized Volatility In Presence Of Structural Breaks," Departmental Working Papers of Economics - University 'Roma Tre' 0208, Department of Economics - University Roma Tre.
    14. Raffaella Giacomini & Barbara Rossi, 2013. "Forecasting in macroeconomics," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 17, pages 381-408, Edward Elgar Publishing.
    15. Galvão, Ana Beatriz & Garratt, Anthony & Mitchell, James, 2021. "Does judgment improve macroeconomic density forecasts?," International Journal of Forecasting, Elsevier, vol. 37(3), pages 1247-1260.
    16. Graham Elliott & Allan Timmermann, 2016. "Forecasting in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 81-110, October.
    17. Pesaran, M. Hashem & Pick, Andreas & Pranovich, Mikhail, 2013. "Optimal forecasts in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 177(2), pages 134-152.
    18. Yin, Anwen, 2015. "Forecasting and model averaging with structural breaks," ISU General Staff Papers 201501010800005727, Iowa State University, Department of Economics.
    19. Gantungalag Altansukh & Denise R. Osborn, 2022. "Using structural break inference for forecasting time series," Empirical Economics, Springer, vol. 63(1), pages 1-41, July.
    20. Raffaella Giacomini & Barbara Rossi, 2015. "Forecasting in Nonstationary Environments: What Works and What Doesn't in Reduced-Form and Structural Models," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 207-229, August.

    More about this item

    Keywords

    Recent structural break; choice of estimation window; forecasting; real-time data;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tam:wpaper:1692. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sami Remes (email available below). General contact details of provider: https://edirc.repec.org/data/khutafi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.