The Forecasting Performance of SETAR Models: An Empirical Application
13 Pages Posted: 4 Jul 2017
Date Written: July 2017
Abstract
The aim of this paper is to evaluate the forecasting performance of SETAR models with an application to the Industrial Production Index (IPI) of four major European countries over a period which includes the last Great Recession. Both point and interval forecasts are considered at different horizons against those obtained from two linear models. We follow the approach suggested by Teräsvirta et al. (2005) according to which a dynamic specification may improve the forecast performance of the nonlinear models with respect to the linear models. We re‐specify the models every twelve months and we find that the advantages of this procedure are particularly evident in the forecast rounds immediately following the re‐specification.
Keywords: forecasting accuracy, industrial production index, interval forecasts, point forecasts, SETAR models
JEL Classification: C22, C52, C53
Suggested Citation: Suggested Citation
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