Stock-Flow Dynamic Projection
17 Pages Posted: 12 Feb 2015
Date Written: January 1, 2015
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
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