Real-time forecasting of inflation and output growth in the presence of data revisions
Clements, Michael P. and Galvão, Ana Beatriz (2010) Real-time forecasting of inflation and output growth in the presence of data revisions. Working Paper. Coventry: University of Warwick. Dept. of Economics. Warwick economics research paper series (TWERPS), Vol.2010 (No.953).
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We show how to improve the accuracy of real-time forecasts from models that include autoregressive terms by estimating the models on 'lightly-revised' data instead of using data from the latest-available vintage. Forecast accuracy is improved by reorganizing the data vintages employed in the estimation of the model in such a way that the vintages used in estimation are of a similar maturity to the data in the forecast loss function. The size of the expected reductions in mean squared error depend on the characteristics of the data revision process.
Empirically, we find RMSFE gains of 2-4% when forecasting output growth and inflation with AR models, and gains of the order of 8% with ADL models.
|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, Real-time data processing, Econometric models|
|Series Name:||Warwick economics research paper series (TWERPS)|
|Publisher:||University of Warwick. Dept. of Economics|
|Place of Publication:||Coventry|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Aruoba, S. B. (2008). Data revisions are not well-behaved. Journal of Money, Credit and Banking,
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