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Forecasting in nonstationary environments: What works and what doesn't in reduced-form and structural models

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Abstract

This review provides an overview of forecasting methods that can help researchers forecast in the presence of non-stationarities caused by instabilities. The emphasis of the review is both theoretical and applied, and provides several examples of interest to economists. We show that modeling instabilities can help, but it depends on how they are modeled. We also show how to robustify a model against instabilities.

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  • Raffaella Giacomini & Barbara Rossi, 2014. "Forecasting in nonstationary environments: What works and what doesn't in reduced-form and structural models," Economics Working Papers 1476, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1476
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    Cited by:

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    3. Cardani, Roberta & Paccagnini, Alessia & Villa, Stefania, 2019. "Forecasting with instabilities: An application to DSGE models with financial frictions," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    4. Alessandro Casini, 2021. "Theory of Evolutionary Spectra for Heteroskedasticity and Autocorrelation Robust Inference in Possibly Misspecified and Nonstationary Models," Papers 2103.02981, arXiv.org.
    5. Graham Elliott & Allan Timmermann, 2016. "Forecasting in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 81-110, October.
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    7. Alessandro Casini & Pierre Perron, 2018. "Structural Breaks in Time Series," Papers 1805.03807, arXiv.org.

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    More about this item

    Keywords

    Forecasting; instabilities; structural breaks.;
    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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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