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Robustifying forecasts from equilibrium-correction models

Abstract:

Cointegration analysis has led to equilibrium-correction econometric systems being ubiquitous. But in a non-stationary world subject to structural breaks, where model and mechanism differ, equilibrium-correction models are a risky device from which to forecast. Equilibrium shifts entail systematic forecast failure, as forecasts will tend to move in the opposite direction to data. We explain the empirical success of second-differenced devices and of model transformations based on additional di...

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Publication status:
Published
Peer review status:
Peer reviewed

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Institution:
University of Oxford
Division:
SSD
Department:
Economics
Research group:
Econometrics
Oxford college:
Nuffield College
Role:
Author
Publisher:
Elsevier Publisher's website
Journal:
Journal of Econometrics Journal website
Volume:
135
Issue:
1-2
Pages:
399-426
Publication date:
2005-09-08
DOI:
ISSN:
0304-4076
Language:
English
Keywords:
Subjects:
UUID:
uuid:2bc5a3db-644f-460f-bcba-11bcbb75f875
Local pid:
ora:1929
Deposit date:
2008-05-13

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