Clements, Michael P. and Smith, Jeremy (Jeremy P.) (1997) A Monte Carlo study of the forecasting performance of empirical SETAR models. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

In this paper we investigate the multi-period forecast performance of a number of empirical selfexciting threshold autoregressive (SETAR) models that have been proposed in the literature formodelling exchange rates and GNP, amongst other variables. We take each of the empirical SETAR models in turn as the DGP to ensure that the ‘non-linearity’ characterises the future, and compare the forecast performance of SETAR and linear autoregressive models on a number of quantitative and qualitative criteria. Our results indicate that non-linear models have an edge in certain states of nature but not in others, and that this can be highlighted by evaluating forecasts conditional upon the regime.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Economic forecasting, Threshold logic, Simulation games, Monte Carlo method
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	6 December 1997
Number:	No.464
Number of Pages:	22
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	L116251015 (ESRC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1667

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