Modeling the impact of forecast-based regime switches on macroeconomic time series

Koen Bel and Richard Paap

No EI 2013-25, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Forecasts of key macroeconomic variables may lead to policy changes of governments, central banks and other economic agents. Policy changes in turn lead to structural changes in macroeconomic time series models. To describe this phenomenon we introduce a logistic smooth transition autoregressive model where the regime switches depend on the forecast of the time series of interest. This forecast can either be an exogenous expert forecast or an endogenous forecast generated by the model. Results of an application of the model to US inflation shows that (i) forecasts lead to regime changes and have an impact on the level of inflation; (ii) a relatively large forecast results in actions which in the end lower the inflation rate; (iii) a counterfactual scenario where forecasts during the oil crises in the 1970s are assumed to be correct leads to lower inflation than observed.

Keywords: forecasting; inflation; nonlinear time series; regime switching (search for similar items in EconPapers)
Date: 2013-08-08
New Economics Papers: this item is included in nep-cba, nep-ets, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repub.eur.nl/pub/40884/EI2013-25.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:40884

Access Statistics for this paper

More papers in Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute Contact information at EDIRC.
Bibliographic data for series maintained by RePub ( this e-mail address is bad, please contact ).