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Author
J.G. de Gooijer
A. Vidiella-i-Anguera
Year
2004
Title
Forecasting threshold cointegrated systems
Journal
International Journal of Forecasting
Volume | Issue number
20 | 2
Pages (from-to)
237-253
Number of pages
17
Document type
Article
Faculty
Faculty of Economics and Business (FEB)
Institute
Amsterdam School of Economics Research Institute (ASE-RI)
Abstract
The cointegration literature suggests that forecast errors may be reduced by incorporating the knowledge of cointegrating relationships into linear models to generate forecasts. We show that the long-term (one- to sixty-steps ahead) forecasting performance can further be enhanced by applying nonlinear equilibrium correction models. In particular, we focus on a bivariate threshold vector equilibrium correction model with the same unknown cointegrating parameter vector in both regimes (TVECM), and a bivariate cointegration model with regime-specific cointegration vectors (LTVECM). Based on simulation experiments as well as two real data sets, and using a variety of evaluation measures, we find that the forecasting performance of the LTVECM outperforms the TVECM and the usual linear specification of the equilibrium correcting mechanism. This result holds for forecasts generated by bootstrapping and Monte Carlo simulation.
URL
go to publisher's site
Link
Link
Language
Undefined/Unknown
Permalink
http://hdl.handle.net/11245/1.237723

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