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Evaluating Real-Time Forecasts in Real-Time

25 Pages Posted: 11 Sep 2007  

Francesco Ravazzolo

Free University of Bolzano

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Dick J. C. van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; ERIM

Date Written: August 2007

Abstract

The accuracy of real-time forecasts of macroeconomic variables that are subject to revisions may crucially depend on the choice of data used to compare the forecasts against. We put forward a flexible time - varying parameter regression framework to obtain early estimates of the final value of macroeconomic variables based upon the initial data release that may be used as actuals in current forecast evaluation. We allow for structural changes in the regression parameters to accommodate benchmark revisions and definitional changes, which fundamentally change the statistical properties of the variable of interest, including the relationship between the final value and the initial release. The usefulness of our approach is demonstrated through an empirical application comparing the accuracy of forecasts of US GDP growth rates from the Survey of Professional Forecasters and the Greenbook.

Keywords: Data revision, forecast evaluation, parameter uncertainty, Bayesian estimation, structural breaks

JEL Classification: C11, C22, C53, C82, E01, E27

Suggested Citation

Ravazzolo, Francesco and Franses, Philip Hans and van Dijk, Dick J. C., Evaluating Real-Time Forecasts in Real-Time (August 2007). Available at SSRN: https://ssrn.com/abstract=1012571 or http://dx.doi.org/10.2139/ssrn.1012571

Francesco Ravazzolo

Free University of Bolzano ( email )

Bolzano
Italy

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

Dick J.C. Van Dijk (Contact Author)

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

ERIM ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1263 (Phone)
+31 10 4089162 (Fax)

HOME PAGE: http://people.few.eur.nl/djvandijk

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