Forecast performance of nonlinear error-correction models with multiple regimes

Zacharias Psaradakis A · Fabio Spagnolo

33 citations0/0 files storedJournal of Forecasting

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Forecasting Techniques and Applications Monetary Policy and Economic Impact Statistical and numerical algorithms

Abstract

In this paper we investigate the forecast performance of nonlinear error-correction models with regime switching. In particular, we focus on threshold and Markov switching error-correction models, where adjustment towards long-run equilibrium is nonlinear and discontinuous. Our simulation study reveals that the gains from using a correctly specified nonlinear model can be considerable, especially if disequilibrium adjustment is strong and/or the magnitude of parameter changes is relatively large. Copyright © 2005 John Wiley & Sons, Ltd.

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1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 1994Comparing Predictive Accuracy 1995Comparing Predictive Accuracy 1990Statistical Inference in Instrumental Variables Regression with I(1) Processes 1998Evaluating Density Forecasts with Applications to Financial Risk Management 1992An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator 1997Threshold Cointegration 1992A Simple Nonparametric Test of Predictive Performance

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