The impact of structural breaks on the stability of the out-of-sample predictive content of financial variables for Canada's real GDP growth: An encompassing approach

Akhter Faroque (), William Veloce () and Jean-Francois Lamarche ()
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Akhter Faroque: Department of Economics, Laurentian University
William Veloce: Department of Economics, Brock University

No 803, Working Papers from Brock University, Department of Economics

Abstract: This paper investigates the timing, frequency and the impact of structural breaks on the stability of the predictive content of a large number of financial variables for Canada's output growth. The forecasts are evaluated over two identified out-of-sample regimes using both the equal accuracy and encompassing tests. The results have enabled us to classify all variables into four useful groups. Two of Canada's term spreads near the short-end of the yield curve belong to the group that exhibits strong and stable predictive content at long horizons that are most relevant to monetary policy providing an indication that the Bank of Canada should not discard these spreads from its list of closely watched information variable.

Keywords: Forecasts; Structural Breaks (search for similar items in EconPapers)
JEL-codes: C52 C53 E44 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-04
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:brk:wpaper:0803

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