Stock-Flow Dynamic Projection

17 Pages Posted: 12 Feb 2015

See all articles by Mauro Gallegati

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Xi Hao Li

Università Politecnica delle Marche - Department of Economics

Date Written: January 1, 2015

Abstract

Borrowing from our experience in agent-based computational economic research from 'bottom-up', this paper considers economic system as multi-level dynamical system that micro-level agents' interaction leads to structural transition in meso-level, which results in macro-level market dynamics with endogenous fluctuation or even market crashes. By the concept of transition matrix, we develop technique to quantify meso-level structural change induced by micro-level interaction. Then we apply this quantification to propose the method of dynamic projection that delivers out-of-sample forecast of macro-level economic variable from micro-level big data. We testify this method with a data set of financial statements for 4599 firms listed in Tokyo Stock Exchange for the year of 1980 to 2012. The Diebold-Mariano test indicates that the dynamic projection has significantly higher accuracy for one-period-ahead out-of-sample forecast than the benchmark of ARIMA models.

Keywords: economic forecasting, dynamic projection, multi-level dynamical system, transition matrix

JEL Classification: C53, C63, E27

Suggested Citation

Gallegati, Mauro and Li, Xi Hao, Stock-Flow Dynamic Projection (January 1, 2015). Available at SSRN: https://ssrn.com/abstract=2563368 or http://dx.doi.org/10.2139/ssrn.2563368

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

Xi Hao Li (Contact Author)

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli 8
Ancona, Marche 60121
Italy

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