The Contribution of Structural Break Models to Forecasting Macroeconomic Series

Download or read book The Contribution of Structural Break Models to Forecasting Macroeconomic Series written by Luc Bauwens and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper compares the forecasting performance of different models which have been proposed for forecasting in the presence of structural breaks. These models differ in their treatment of the break process, the model which applies in each regime and the out-of-sample probability of a break occurring. In an extensive empirical evaluation involving many important macroeconomic time series, we demonstrate the presence of structural breaks and their importance for forecasting in the vast majority of cases. We find no single forecasting model consistently works best in the presence of structural breaks. In many cases, the formal modeling of the break process is important in achieving good forecast performance. However, there are also many cases where simple, rolling window based forecasts perform well.